Getting a mortgage loan after a Chapter 7 Bankruptcy can be difficult, but our lenders have a number of solutions for borrowers in different situations. The best option for you will depend on your timeline, your credit score, and the down payment you can make. We will explore the info you need to qualify for an FHA, VA, Conventional, or Non-QM mortgage after a Chapter 7 Bankruptcy.
Overview
- FHA: Low down payment, shorter waiting period, and low credit score requirement
- VA: No down payment, shorter waiting period, and low credit score requirement
- Conventional: Longest waiting period, high credit score requirement
- Non-QM: No waiting period and high down payment
- Earned Equity Program: No waiting period, low down payment, and low credit score requirement
FHA Requirements
FHA loans are insured by the Federal Housing Authority, so they have more forgiving standards than conventional or Non-QM loan programs. Here are the most important guidelines when considering if an FHA loan is right for you:
- Waiting Period: 2 years after discharge (or 1 year in the event of extenuating circumstances)
- Credit Score: minimum score of 500
- Down Payment: Minimum of 3.5% with a score of 580+ or 10% with a score below 580
- Refinance: Maximum loan amount is 97.75% of the home’s value for a rate-and-term refinance, and 80% for cash-out refinances
VA Requirements
VA loans are insured by the Veterans Affairs department so they also have flexible standards, but are reserved for veterans, active-duty military, and the spouses of deceased veterans. These are the guidelines to know when weighing your options:
- Waiting Period: 2 years after discharge (or 1 year in the event of extenuating circumstances)
- Credit Score: Minimum score of 500
- Down Payment: No minimum down payment
- Refinance: Maximum loan amount is 100% of the home’s value for a rate-and-term refinance, and 80% for cash-out refinances
Conventional Requirements
Conventional loans are not insured by any Federal Agency, the lending standards are set by FNMA and Freddie Mac who buy the loans from mortgage lenders, so they have less flexible standards than FHA or VA loans.
- Waiting Period: 4 years from discharge or dismissal (or 2 years in the event of extenuating circumstances)
- Credit Score: Generally 620 or higher
- Down payment: Minimum of 3% for first time homebuyers or 5% for other borrowers. Borrowers need to take out mortgage insurance when putting down less than 20%
- Refinance: Maximum loan amount is 95% of the home’s value for a rate-and-term refinance, and 80% for cash-out refinances
Non-QM Requirements
Like conventional loans, Non-Qualified Mortgages are not insured by a Federal Agency but the key difference is that FNMA and Freddie Mac do not set the lending standards. This means that Non-QM lenders are free to set their own standards based on the borrower’s discharge date, credit score, and down payment.
No Waiting Period
Our non-QM lenders have programs that can qualify borrowers 1 day after their chapter 7 bankruptcy is discharged. Typically, these programs require borrowers to have a credit score of 620+ and to make a down payment of 25% or higher. However, programs are even available to borrowers with credit scores as low as 550 if they can make a down payment of 40% and have 3 months of mortgage payments in reserve.
One Year Waiting Period
Waiting one year after bankruptcy discharge will generally give borrowers better terms. A minimum credit score of 620 is still required by most lenders but the minimum down payment can be as low as 15% down. Again, borrowers with credit scores as low as 550 can get a non-qualified mortgage if they are able to make a down payment of 35% and have assets in reserve.
Two Year Waiting Period
While borrowers who have waited two years are eligible for FHA loans, if they are making a purchase exceeding the county loan limit, our Non-QM lenders have options available to them.
Earned Equity Program
Another option available to borrowers who have been discharged from a chapter 7 bankruptcy is the Earned Equity Program (EEP). The EEP is a unique program in which a chooses a property then enters a lease-to-own agreement with an FHA eligible government entity that completes the initial purchase and holds the mortgage. Here are the most important facts about the EEP program:
- Purchase price is locked in at the time of closing for the borrower’s eventual purchase
- Waiting Period: No waiting period
- Credit Score: 580 minimum (some programs go down to 500 if the borrower has assets in reserve)
- Down Payment: Minimum down payment of 3.5%
FAQ
Q: Which programs has the lowest rates?
A:Typically, FHA and VA loans have the lowest rates because they are insured by government agencies in the event of default. Conventional loans also tend to have low rates because they have more rigorous lending standards. But non-QM and the Earned Equity programs have the highest rates because they have more flexible lending guidelines and take on more credit distressed borrowers.