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The Affects A Bankruptcy Has On Home Loan Approvals

By David G White

When it comes to getting approved for a mortgage loan, a bankruptcy can play a crucial role in your ability to get approved. There are several factors that a bankruptcy has on the mortgage process. Knowing what to expect can help you increase your chances for a mortgage approval.

The Waiting Period

If a person has filed bankruptcy, it will be more difficult to get approved for a mortgage loan. Many mortgage programs will require a waiting period from the time the bankruptcy has been discharged before the home loan can be approved. Depending on what type of bankruptcy that you filed will depend on how long the waiting period will be. If you filed a chapter 7 bankruptcy, then you will have to wait at least two years from the discharge date before the mortgage can be approved. The two year waiting period is based on a FHA home loan. A conventional home loan will require a four year waiting period.

If you have filed a chapter 13 bankruptcy, the waiting period is still the same on a conventional home loan, but on a FHA mortgage, there is a way to buy a property while still in chapter 13 bankruptcy. FHA mortgage programs will consider the filing date when calculating the waiting period. A chapter 13 bankruptcy client can get approved for a loan after one year from filing the bankruptcy. Since many people are still in chapter 13 bankruptcy after one year, you must get approval from the trustee of your case, that you can add a new debt like a mortgage. Without the trustee approval, you will not get approved for the loan.

All home loan approvals with clients still in chapter 13 bankruptcy require manual underwriting and must follow the FHA guidelines.

Reestablishing Positive Credit

For many people that file bankruptcy, the toughest step in getting a home loan approved is that many mortgage companies require that the customer has reestablished a positive credit history since the bankruptcy. Reestablishing credit history must also show no new negative accounts since the bankruptcy. For example, if you have a bankruptcy that was discharged in 2009 and in 2010, your car was repossessed, then you will not qualify for a home loan.

Reestablishing new credit history usually consists of at least an auto loan and a revolving credit account. Make sure to keep your revolving account balance below 10% of the actual credit limit. Home loans require the reestablishment of credit for approval.

There are other loan programs besides FHA loans and conventional mortgages that have different guidelines when considering a bankruptcy. These types of mortgages are considered non-traditional home loans and many of these programs require a large down payment. Mortgage rates on these programs are also usually 2 to 3 percent higher than a normal conventional home loan.

Avoid New Derogatory Credit

The most important thing to remember after a bankruptcy is to reestablish credit and do not have any new negative accounts since the bankruptcy was filed. You want to show the lender that the bankruptcy was an once in a lifetime event and will not happen again. If the lender believes that there is a habit of bad credit or the likelihood of filing bankruptcy again, the home loan will be declined.

Bankruptcy is not a loan killer, but if you have filed bankruptcy in the last seven years, it is important to make sure that you are doing everything necessary to have positive credit, especially if you want to buy and finance a new house.

David White is a Senior Home Loan Consultant who assist his clients with their Home Loans. David specializes in FHA Home Loans which helps customers who have filed bankruptcy in the past. David has over 12 years experience in the finance industry.

categories: bankruptcy,FHA Home Loans,Mortgage,Mortgages,Finance,Loans,Credit,Lending,Business and Finance,Mortgage,Home Loans,Real Estate

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Article Citation
MLA Style Citation:
White, David G. "The Affects A Bankruptcy Has On Home Loan Approvals." The Affects A Bankruptcy Has On Home Loan Approvals. 13 Aug. 2010. 2 Aug 2014 <>.

APA Style Citation:
White, D (2010, August 13). The Affects A Bankruptcy Has On Home Loan Approvals. Retrieved August 2, 2014, from

Chicago Style Citation:
White, David G. "The Affects A Bankruptcy Has On Home Loan Approvals"

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