WHEN CAN I BUY A HOME AFTER BANKRUPTCY?
Many clients want to know how long they have to wait after bankruptcy before th
ey can buy a new home. The answer depends on whether you are seeking a conventional mortgage, one insured by FHA, VA, or USDA, or looking at a non-conventional uninsured mortgage. It will also depend on whether you have filed a Chapter 7 or a Chapter 13. For non-conventional uninsured mortgages you will need to check with the lender, they will have their own rules. Here are the rules as of 2016 for conventional loans and conventional mortgages.
Chapter 7 Rules
The FHA and VA rules seem to be identical. A borrower must be at least 2 years from the date of discharge of Chapter 7, before they will qualify for an FHA or VA-insured mortgage, in addition, the borrower will need to provide an explanation as to the reason for the bankruptcy. Unavoidable financial distress such as major illnesses or employment loss will help the borrower qualify. The waiting period for the USDA mortgages is 3 years from the date of discharge. Conventional mortgages have even longer waiting periods, usually 4 years from the date of discharge. In all cases, one needs to show that they are otherwise credit-worthy by showing that one has a reliable source of income, a good repayment history on existing loans, and a decent credit score.
Chapter 13 Rules
If a borrower is in a Chapter 13 Plan and has made 12 months of timely payments they may qualify for an FHA, VA, or USDA-insured mortgage. As in Chapter 7, the borrower will also need to show the reason for the bankruptcy, a solid employment history, good credit, and other financial qualifications. The regulations also seem to require that borrowers in a Chapter 13 Plan either obtain the consent of the Chapter 13 Trustee or permission of the Court to make the loan. This requirement is problematic in Wyoming since both the Chapter 13 Trustee and the Court refuse to “consent or permit the debtor to borrow money” Instead, they strictly follow bankruptcy law, and as long as the debtor gives the trustee notice of their intent to make the loan and the trustee does not object the Court has no issue with the debtor making the loan, but there will be no order allowing the loan and no written consent for the loan. Generally, the Law Offices of Patrick M. Hunter has been able to satisfy FHA underwriters by providing proof of the notice, a statement of no objection by the trustee, and a Court Order in a previous matter that indicates that the Court does not issue orders allowing the debtor to incur a mortgage.
If a Chapter 13 case has been concluded with a discharge, it appears that the bankruptcy is not an obstacle to obtaining an FHA, VA, or USDA-insured mortgage. Conventional mortgages require two years after receiving a Chapter 13 discharge and if a Chapter 13 case was dismissed without a discharge, one must wait four years from the date of the dismissal.
