Life can be unpredictable, and sometimes financial hardships happen, leaving lasting marks on your credit history. But don’t worry—having a bankruptcy, foreclosure, or other derogatory mark on your record doesn’t mean you can’t achieve your dream of homeownership. Both FHA and conventional mortgages offer options for borrowers looking to rebuild. Here’s what you need to know about the waiting periods for applying after common financial setbacks.
1. Bankruptcy Chapter 7
FHA Loans: After a Chapter 7 bankruptcy, you can apply for an FHA loan two years after the bankruptcy discharge date. During this time, it’s important to demonstrate that you’ve re-established credit and have no further delinquencies.
Conventional Loans: The waiting period for conventional loans is generally four years after the discharge. However, extenuating circumstances (like medical emergencies) might shorten this to two years, depending on the lender’s policies.
Tip: Use this time to focus on building good financial habits. Keep up with bill payments, reduce debt, and monitor your credit score.
2. Bankruptcy Chapter 13
FHA Loans: With Chapter 13 bankruptcy, you can apply for an FHA loan one year after the payout period, provided you’ve made on-time payments and have received approval from the bankruptcy court.
Conventional Loans: Typically, you need to wait two years after the discharge date to apply for a conventional mortgage. If the bankruptcy was dismissed, the waiting period could be up to four years.
Tip: Regular, on-time payments during your Chapter 13 plan can demonstrate responsible financial management, which will be beneficial when reapplying.
3. Foreclosure
FHA Loans: If you’ve experienced foreclosure, the waiting period to apply for an FHA loan is three years from the date the foreclosure was completed. As with bankruptcy, you’ll need to show that you’ve maintained good credit since the event.
Conventional Loans: Conventional loans generally have a seven-year waiting period. In certain cases with extenuating circumstances, this may be reduced to three years with a down payment of at least 10%.
Tip: During the waiting period, focus on saving for a down payment and building a positive credit profile. This will make you a more attractive borrower when you’re ready to apply.
4. Repossession
FHA Loans: FHA guidelines treat repossessions similarly to foreclosures, meaning you’ll face a three-year waiting period before you can apply.
Conventional Loans: Conventional loans typically require a seven-year waiting period after a repossession, but this can be reduced to four years if you can prove extenuating circumstances.
Tip: Use this time to save for a larger down payment, which could help improve your chances of securing a loan.
5. Other Derogatory Marks (Late Payments, Judgments, Collections)
FHA Loans: FHA lenders are generally more lenient with derogatory marks, but it’s still important to address any outstanding judgments or collections. FHA guidelines suggest that borrowers must be in good standing for at least one year.
Conventional Loans: Conventional loans are stricter, especially with repeated late payments. While there’s no fixed waiting period, lenders will look at your recent payment history and how you’ve managed your debt since the derogatory mark appeared.
Tip: Clearing outstanding debts and making timely payments can boost your credit score and improve your loan application’s chances of approval.
The Importance of Extenuating Circumstances
If your financial setback was caused by extenuating circumstances (like a medical emergency or job loss), be sure to discuss this with your lender. Some lenders may be able to offer shorter waiting periods or better terms, but you’ll need to provide documentation to support your case.
Ready to Get Back on Track? Contact Best Option Mortgage Today!
Financial setbacks don’t have to mean the end of your homeownership dreams. With time, patience, and a focus on rebuilding your credit, you can secure a mortgage that suits your needs. At Best Option Mortgage, we’re here to help you navigate the process and find the best path forward.
Ask the Expert: Frequently Asked Questions
How do I rebuild my credit after bankruptcy?
Start by making on-time payments, reducing your debt, and monitoring your credit score regularly. Consider a secured credit card to begin establishing a positive payment history.Can I get a mortgage if I’ve had a foreclosure?
Yes, but you’ll need to wait at least three years for an FHA loan and seven years for a conventional loan. Focus on re-establishing credit during this time.What qualifies as extenuating circumstances?
Examples include job loss, medical emergencies, or a death in the family that led to financial hardship. Documentation will be required to support your claim.
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Best Option Mortgage is a DBA of ML Mortgage Corp. ML Mortgage Corp. is a state-licensed mortgage lender, NMLS ID #362312, licensed by the CA Department of Financial Protection and Innovation under the Finance Lenders Law, License #60DBO69831. For other states, visit www.mlmortgage.net. To verify licenses, visit www.nmlsconsumeraccess.org. All loans are subject to credit approval and acceptable collateral. Additional terms and conditions apply. Programs, rates, terms, and conditions may change without notice. Not all programs are available in all states. There is no guarantee that all borrowers will qualify. Restrictions may apply. This is not a commitment to lend. © 2024 ML Mortgage Corp. All rights reserved.