The myth that it’s impossible to get a mortgage loan if you’ve filed for bankruptcy deters many people who could benefit from a financial fresh start. Home buying may be of even greater concern in Las Vegas than other areas of the country, since the Las Vegas metro has seen rents increase by an average of 21% across the past five years. That’s nearly double the average increase nationwide.
The irony is that most people who are considering bankruptcy are already carrying considerable debt, and have either fallen behind or are struggling to keep up minimum payments. In other words, most are already in a situation that would make it very difficult to qualify for a mortgage loan. As those would-be future homeowners continue to wrestle with debt in an effort to protect their access to home loans, many are unknowingly pushing the day they may qualify further and further into the future.
Can You Get a Mortgage after Bankruptcy?
Mortgage lenders, like other creditors, consider many factors when determining whether or not to approve a loan application. Some of those factors include:
- Your income
- How long you’ve been employed
- The amount of your down payment
- Your other monthly debt payments
- Your credit history
- Your credit score
Bankruptcy becomes a part of your credit history, and generally remains on your credit reports for seven to 10 years. So, it is one factor mortgage lenders will consider. But, that doesn’t mean having a bankruptcy on your credit history will be fatal to your mortgage application–especially not if you’re a few years post-bankruptcy.
How Soon after Bankruptcy Can You Qualify for a Mortgage?
There’s no one-size-fits-all answer to this question. How long it takes to qualify for a mortgage after bankruptcy will depend on a variety of factors, including the type of loan you’re applying for. Here are the typical waiting periods for some of the most common types of mortgage loans:
- Federal Housing Administration (FHA) loans: 2 years from the date of a Chapter 7 discharge
- Department of Veterans Affairs (VA) loans: 2 years from the date of a Chapter 7 discharge
- Conventional mortgage loans: 4 years from the date of a Chapter 7 discharge or 2 years after Chapter 13
Both the FHA and the VA may offer mortgage loans to people who are still in Chapter 13 bankruptcy if all other qualifications are met and plan payments have been made on time for at least one year.
The bottom line is that many people who file for Chapter 7 bankruptcy can qualify for a mortgage loan just two years after discharge, and the options are even more flexible for those filing Chapter 13. However, it’s important to consider more than the timeline when applying for a mortgage loan after bankruptcy.
The mortgage loan that is easiest to qualify for or is available to you earliest isn’t necessarily the best option for you and your financial future. The more you invest in stabilizing your finances, rebuilding your credit and saving toward a down payment before you pursue a home loan, the better terms you are likely be able to secure. That’s more important than you may realize.
As of November 2019, the median home sale price in Las Vegas is $274,900, and that number is expected to rise in the coming year. At that price point and with a 20% down payment, a single percentage point in interest could raise your monthly payment by more than $100 and cost you more than $47,000 across the life of a 30-year loan.
Preparing for a Post-Bankruptcy Home Purchase
If you’re filing for bankruptcy or have filed for bankruptcy and are hoping to purchase a home in the next few years, don’t underestimate the time it will take to rebuild your credit. The waiting periods for different types of loans are minimum guidelines, not guarantees. Qualifying for a mortgage after bankruptcy requires more than allowing time to pass.
Make smart use of that time from the very beginning with steps such as:
- Monitoring your credit reports to ensure that debts discharged in bankruptcy aren’t being reported with outstanding balances or continuing to accrue new late payments
- Gradually and strategically establishing new credit accounts with low utilization and a consistent record of on-time payments
- Setting money aside to maximize your down payment
The bottom line is that most people who manage their finances responsibly after bankruptcy are able to secure mortgage loans within a few years after bankruptcy. If you are struggling financially and think you might benefit from the Chapter 7 clean slate or spreading out your past-due balances across a three to five year Chapter 13 plan, you shouldn’t be deterred by mythology.
The best source of accurate, actionable information about your options and how each is likely to play out in your circumstances is an experienced Las Vegas bankruptcy attorney. You can schedule a free consultation with a Freedom Law Firm attorney right now–just call 702-903-1459 or fill out the contact form on this page to get started.