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Getting a mortgage after bankruptcy
Banks will be willing to work with you — but only after the waiting period.
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If you’ve filed for bankruptcy in the last seven to 10 years, you’ll likely have to pay higher interest rates on a new mortgage — especially if you can’t put up a large down payment.
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What is a bankruptcy discharge?
A bankruptcy discharge is a court order releasing you from your obligation to pay any debts that were included in your bankruptcy filings. Essentially, it means that the bankruptcy process is finished.
Can I get a mortgage after bankruptcy?
Yes, but it will be more difficult to get approved, and you may need to come up with a bigger down payment or deal with higher interest rates. And you won’t be eligible until after a waiting period.
Chapter 7 bankruptcy
You’ll need to wait at least two years before applying for an FHA or VA loan and four year before applying for a conventional loan backed by Fannie Mae, Ginnie Mae or Freddie Mac — the government enterprises that back or buy most conventional loans. If you can prove extenuating circumstances for the bankruptcy, like medical issues or losing your job, the waiting period can be cut to two years.
Chapter 13 bankruptcy
If your bankruptcy is over or you’ve been making payments for more than a year, you can qualify for an FHA or VA loan. To qualify for a conventional mortgage backed by Fannie Mae, Ginnie Mae or Freddie Mac, you’ll need to wait two years after discharge or four years after dismissal.
Tips for applying for a mortgage after bankruptcy
To find a mortgage that works for you:
- Research lenders. Look for a lender who has offered loans after a bankruptcy discharge in the past. Also, take the time to research reviews and make sure they’re a fair and reliable lender.
- Compare options. You’ll likely need to pay a higher interest rate, but how much higher can vary greatly from one lender to the next. Comparing multiple lenders can help you find a rate that’s fair.
- Only apply to one. Every application for a loan appears on your credit file, and serial borrowing is viewed negatively by lenders. Apply only to your top lender, and wait a while before applying to a new one if your application is denied.
How to compare mortgages
When choosing between mortgage providers, compare your options based on:
- Availability. Not all mortgage companies will be willing to offer a loan to someone who has a bankruptcy discharge on their file. Check if you’re eligible for a mortgage before applying.
- Interest rates. Even a small difference in the interest rate can add up to thousands over the life of the loan.
- Fees. These include application fees, origination fees and anything else that might be rolled into the closing costs. You’ll also want to check if you’ll need to pay any fees if you either repay the loan early or refinance in a few years.
- Features and deals. Some banks will offer special deals if you open a checking or savings account at the same time.
Pros and cons of getting a mortgage with a bankruptcy discharge
Pros
- You might still be able to get a loan. While the terms may be less favorable, it is still possible to get a mortgage.
- You can refinance when your credit improves. After seven to 10 years, the bankruptcy will be wiped from your credit file, and you may be able to refinance with better terms.
Cons
- Waiting period. In order to get a government-backed loan, you’ll need to wait two to four years after your bankruptcy is completed.
- Higher interest rate. If you’re approved for a mortgage with a bankruptcy on your credit report, you’ll likely have to pay a high interest rate.
Bottom line
If you’ve filed for bankruptcy in the past, it doesn’t mean you can’t ever get a mortgage again — but it does mean you may need to wait a few years before applying.
If you’re already past the waiting period, compare mortgage lenders to find out what your options are.
Frequently Asked Questions
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