Can You Get Approved for a Mortgage After Filing Bankruptcy?
Bankruptcy wipes the credit slate clean, and it isn't a credit death sentence. Mortgage lenders often offer mortgage loans to people with previous bankruptcies. They review those loan applications more carefully and may require extra documentation to ensure the borrower isn't on the same financial path that led to the bankruptcy.
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Chapter 13 Bankruptcy
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Chapter 13 bankruptcy consolidates the borrower's debts and creates a plan to repay them in three to five years. If the borrower owns a home with a mortgage, this mortgage may be included in the bankruptcy. Mortgage companies review the borrower's post-bankruptcy credit history and ask for a letter from the bankruptcy trustee. Many mortgage companies allow homeowners currently in chapter 13 bankruptcy to purchase or refinance a home with approval from the bankruptcy trustee.
Chapter 7 Bankruptcy
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Chapter 7 bankruptcy eliminates the borrower's obligation to the debts. No repayment is required. An asset securing a debt may be repossessed or foreclosed and sold to pay off the outstanding debt. Mortgage companies will eventually lend to borrowers who filed a chapter 7 bankruptcy as well. One aspect that may cause additional issues is if the chapter 7 bankruptcy included a mortgage and the home was foreclosed. Foreclosure, even if part of a bankruptcy, has its own set of mortgage rules and guidelines that must be met prior to loan approval.
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Waiting Periods
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Often mortgage companies require waiting periods of two to four years before lending to someone who filed bankruptcy. Once the debts are discharged, the waiting period begins. Mortgage lenders determine whether the borrower has re-established his credit history and proved he is now able to manage his debts. A new mortgage may be declined if any derogatory credit report appears after a bankruptcy. As of 2011, Fannie Mae and Freddie Mac require a four-year waiting period after foreclosure. If you can document extenuating circumstances, such as job loss, injury, illness or death of a primary wage earner, they may approve a loan after only two years after the bankruptcy discharge.
Documentation Requirements
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Lenders require you to provide a copy of your complete bankruptcy discharge paperwork when you apply for the loan. Additionally, the application specifically asks whether you have filed bankruptcy in the declarations section. You must check this box "Yes." Often lenders request a signed letter of explanation regarding the circumstances surrounding the bankruptcy.
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