Bankruptcy and Home Ownership
While bankruptcy can be devastating, it is not the end of the world. According to Fannie Mae, bankruptcy is considered a significant derogatory credit event. The presence of an event like this on your record dramatically increases your chances of defaulting in the future and represents a large risk to lenders. A lender will look at the reason for the bankruptcy, and determine if enough time has passed in order for you to be a trustworthy borrower.
If you have filed for either Chapter 7 or Chapter 11 bankruptcy, there is a four year waiting period for after the dismissal or discharge date. If there are extreme extenuating circumstances a two year waiting period is permissible by some lenders. If you have filed for Chapter 13 bankruptcy there is a two year waiting period from the discharge date or a four year waiting period from the dismissal date. In the case of Chapter 13 bankruptcy, the two year waiting period from the discharge date reflects that the borrower has successfully completed a portion of the Chapter 13 plan. Someone who was unable to do this will be held to the four year waiting period. There are exceptions made, but again, only in extreme extenuating circumstances.
Should you have filed for bankruptcy more than once within the last seven years then a five year waiting period is required from the most recent dismissal or discharge date. Having more than one bankruptcy filing on your credit history shows significant derogatory credit, and could make lenders wary because it increases your likelihood to default on your loan in the future. It is important to note that if a borrower and a co-borrower each have a bankruptcy on their credit history it is not considered a multiple bankruptcy according to Fannie Mae. As with a single bankruptcy filing there are exceptions with multiple bankruptcy. A three year waiting period is permitted under extenuating circumstances if you have filed for multiple bankruptcies in the last seven years.
If you have any other questions about bankruptcy when applying for a mortgage please feel free to contact United Home Loans at (708) 531-8388