How does Bankruptcy Affect Homebuyers?

Well, the guidelines are different for each loan product.  Below are just a few but be cautioned the bank may have more restrictive guidelines.


FHA 


Chapter 7 - Waiting period of two years from the date of the discharge provided the borrower has:

• Reestablished good credit, or
• Chosen not to incur new credit obligations

An elapsed period of less than two years, but not less than 12 months may be acceptable for an FHA-insured mortgage, if the borrower

• can show that the bankruptcy was caused by extenuating circumstances beyond his/her control such as a death of spouse, and
• has since exhibited a documented ability to manage his/her financial affairs in a responsible manner.

Note: The borrower must document that the current situation indicates that the events that led to the bankruptcy are not likely to recur.


Chapter 13 - A Chapter 13 bankruptcy does not disqualify a borrower from obtaining an FHA-insured mortgage, provided that the borrower documents that

• one year of the payout period under the bankruptcy has elapsed, and
• the borrower's payment performance has been satisfactory and all required payments have been made on time.

The borrower must receive written permission from the court to enter into the mortgage transaction.


Conventional


Chapter  7 or Chapter 11 - A four year waiting period is required from the discharge or dismissal date of the bankruptcy.


Chapter 13 - There is a distinction between those that were discharged and those that were dismissed. The waiting period required is as follows:

• Two years from the discharge date, or
• Four years from the dismissal date.

A borrower who was unable to complete the Chapter 13 plan and received a dismissal will have a four year waiting period.

VA

Chapter 7 - Two year waiting period

Chapter 13 -  

• If the borrower has finished making all payments satisfactorily, the lender may conclude that the borrower has reestablished satisfactory credit.
• If the borrower has satisfactorily made at least 12 months worth of payments and the Trustee or the Bankruptcy Judge approves of the new credit, the borrower may be considered.

Contact me if you have individual questions at reneegerke@peoplesmortgage.com