Mortgage After Bankruptcy: Timelines for Eligibility

Bankruptcy applicants often have concerns about the effects of Chapter 7 or Chapter 13 bankruptcy on credit ratings and future opportunities for borrowing. In many cases, people who are considering bankruptcy due to mortgage difficulties and foreclosure wonder how long it will take to qualify for a mortgage and purchase a home in the future.

Federal guidelines for reviewing borrower credit history are far less stringent in this respect than most people might think. After a couple or individual seeks relief in a bankruptcy proceeding, the Federal Housing Administration (FHA), Veterans Administration (VA), Fannie Mae and Freddie Mac have a variety of timelines for mortgage eligibility:

  • The FHA will consider approval of a mortgage application from a borrower who has been able to meet the obligations of a Chapter 13 repayment plan for one year. Chapter 7 applicants are eligible two years from the bankruptcy discharge date (not the filing date). In addition, the FHA imposes a three-year waiting period from the date of foreclosure.
  • For so-called "caution" mortgages, Freddie Mac looks back two years from the discharge or dismissal of either a Chapter 13 bankruptcy or a Chapter 7 that was caused by extenuating circumstances. If a bankruptcy resulted from financial mismanagement, the recovery period for reestablishing credit is generally four years. After a foreclosure, eligibility ranges from three to seven years, and time limits after a short sale or deed-in-lieu of foreclosure range from two to four years.
  • Fannie Mae requires four years for most bankruptcy cases, but as little as two years after a Chapter 13 discharge.
  • The Veterans Administration (VA) extends eligibility as soon as two years after a Chapter 7 or 13 bankruptcy discharge, with potentially shorter timelines for those who have rebuilt credit and suffered financial hardship due to extenuating circumstances.

These figures are generally higher for applicants who have had multiple bankruptcies. However, while credit reports register past bankruptcy filings for up to ten years, people who work diligently to reestablish credit after bankruptcy have plenty of reasons to be optimistic about their future ability to borrow.

Of course, potential borrowers also have options to pursue mortgages from private lenders without federal government backing, with the likelihood of significantly higher down payments and interest rates. In all post-bankruptcy borrowing situations, clear documentation of extenuating circumstances that led to financial stress, including death of a family member, job loss, medical problems or losses due to fraud can affect a borrower's prospects.

Homeowners who are overwhelmed by a mortgage and require financial relief can learn about options for avoiding foreclosure and other hardships from a bankruptcy lawyer. A focused approach to taking advantage of bankruptcy provisions can pave the way to a sound financial future.