If you are like most filers, you filed for bankruptcy to relieve yourself of overwhelming debt. You also likely carefully considered each of your debt relief options before concluding that bankruptcy was your only hope for financial relief.
Though you may not regret filing, now that you are in a better place, you may wonder if and when you can obtain a mortgage loan. According to Experian, it is possible to get a mortgage loan post-bankruptcy, but doing so will not be easy. The credit bureau explores the setbacks that bankruptcy causes and how the type of bankruptcy you filed may dictate when you can get a mortgage again.
How bankruptcy affects your ability to get a mortgage
Bankruptcy severely damages your credit in three main ways. First, upon the discharge of your debts, your credit scores across all three bureaus will take a substantial hit. The average hit is between 150 and 240 points. The average score post-bankruptcy is 530. At a score of 530 or lower, you will struggle to obtain new credit, which you will need to rebuild your credit. This is the second way in which bankruptcy affects your ability to get a mortgage.
Third and finally, a bankruptcy will remain on your credit report for between seven to 10 years, depending on the type of bankruptcy you filed. Though its impact will lessen over time, a bankruptcy, regardless of age, is a major deterrent for lenders.
How the type of bankruptcy you filed affects your ability to get a mortgage
How long you will have to wait before you can reapply for a mortgage and for how long the bankruptcy will stay on your report depends largely on the type of bankruptcy you filed. Below is an overview of the terms associated with a Chapter 7, Chapter 13 and Chapter 11 bankruptcy:
- Chapter 7: A Chapter 7 bankruptcy will remain on your report for 10 years. Most lenders will require you to accrue a substantial down payment before you can apply for a home loan. The waiting period between the discharge date and when you may apply for a mortgage varies from two years to four years, depending on the type of loan for which you apply.
- Chapter 13: A Chapter 13 will remain on your credit report for up to seven years. Before you apply for a home loan, you must seek approval from your bankruptcy trustee. For all loan types save for a conventional loan, you must wait one year from the date of discharge to apply for a mortgage. A conventional loan requires a two-year waiting period.
- Chapter 11: For all loan types except for a Chapter 11, you can apply for a mortgage as soon after your discharge date as your credit allows. A conventional loan requires a four-year waiting period.
The rules regarding obtaining a mortgage post-bankruptcy vary for everyone. If you are serious about buying a home, consult with a qualified professional.
