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Qualifying for a mortgage after bankruptcy

In 2010, bankruptcy filings peaked at an all-time high of about 1.5 million, according to the American Bankruptcy Institute. While many of these filers felt defeated at the time, most have bounced back from their downtrodden financial situations and continue to move forward with their lives.

The New York Times recently featured an interesting piece on obtaining a mortgage after filing for bankruptcy. The Times stated that many people who filed for bankruptcy or lost their homes to foreclosure during the recent economic recession are now eligible to qualify for a mortgage. 

While a bankruptcy can stay on a person’s credit report for up to 10 years, lenders don’t have to wait that long before choosing to give the person a mortgage. For loans that are backed by the Federal Housing Administration or Fannie Mae, consumers must only wait between two and four years after filing for bankruptcy protection before qualifying for a mortgage.   

More specifically, the waiting time requirement for conventional loans is four years for people who went through Chapter 7 bankruptcy, and the time period begins on the date of discharge when debts were wiped clean. Under Fannie Mae guidelines, the waiting time requirement is two years after the date of discharge in a Chapter 13 bankruptcy.

For FHA loans, the wait time is just two years following a Chapter 7 bankruptcy and one year following a Chapter 13 bankruptcy, so long as the filer has court permission and is keeping up with payments under the reorganization plan, the Times reported.

Additionally, it is possible for the waiting time requirements to be waived under certain extenuating situations, the Times article said, though this is rare.

But before rushing into buying a home after bankruptcy, experts advise first determining whether owning or renting really is a better option. Although many people assume that it’s always better to own, renting can have its advantages and qualifying for a mortgage can still be difficult.

Additionally, experts told the Times that lenders will want to see at least two years of consistent, on-time rent payments before a mortgage is approved.

Your bankruptcy lawyer can teach you how to rebuild your credit, examine your credit report and help you determine if applying for a mortgage would be in your best interests.

Source: The New York Times, “Mortgages After Bankruptcy,” Lisa Prevost, Oct. 30, 2014

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