How Long After Chapter 7 Can You Get a Conventional Mortgage?

petition to file for Chapter 7 bankruptcy

Chapter 7 is one of the most common types of bankruptcy in the US. It provides you with relief and protection from debt collection. However, going bankrupt can significantly hurt your credit score, which will be recorded on your credit report. Also, it can stay there for several years. So, it’ll come up when lenders run a credit check on you.

Now, if you’re wondering how long after Chapter 7 can you get a conventional mortgage, it won’t be easy. However, it’s not impossible! If you’re planning to secure a 30-year conventional loan, you need to meet a required period and some other eligibility requirements.

Typically, a mortgage broker in the US is required to wait up to four years to originate a mortgage for someone who has filed such type of bankruptcy. In this period, you have to liquidate your assets to pay creditors. Once you have done this, the remaining debts will be discharged.

Chapter 7 Bankruptcy

A Chapter 7 bankruptcy, often referred to as a liquidation bankruptcy, involves selling non-exempt possessions to repay creditors. However, you can retain exempt assets within certain limits. Once the process concludes, your remaining dischargeable debts are wiped out, providing a financial fresh start.

If you’re struggling with bills and unable to make ends meet, Chapter 7 can help reset your finances. It can “discharge” specific debts, relieving you from paying them. Many filers have “no-asset cases”, meaning they retain all their belongings.

Here’s a high-level overview of the Chapter 7 bankruptcy process:

1. Automatic Stay: Upon filing, the court imposes a temporary stay on your debts, halting debt collection, foreclosure, wage garnishment, repossession, eviction, and utility shutoff.

2. Trustee Oversight: A court-appointed trustee reviews your finances, sells non-exempt property, and uses the proceeds to repay creditors, prioritizing unsecured debts that aren’t dischargeable.

3. Exempt Property: You retain exempt property, which varies by state, with some states allowing a choice between state and federal exemptions.

Difference Between Chapter 7 and Chapter 11 and 13 Bankruptcies

Chapter 7, Chapter 11, and Chapter 13 bankruptcies each offer different solutions tailored to specific financial situations.

Chapter 7 doesn’t require a repayment plan but mandates selling non-exempt assets to pay off creditors. Here, you can discharge most unsecured debts. However, you may lose some property in the process.

On the other hand, Chapter 11, which is known as “reorganization” bankruptcy, is primarily used by businesses. If you own a company, you can continue your daily operations while devising a plan to repay creditors over time. Collection efforts are halted, and significant business decisions require court approval. This type of bankruptcy can lead to complete or partial debt relief, allowing you to restructure effectively.

As for Chapter 13, which is often referred to as “wage earner” bankruptcy, it’s designed for individuals with a regular income who are overwhelmed by debt. It allows you to keep your property and create a court-approved repayment plan lasting three to five years. A major advantage when filing for this type of bankruptcy is it stops foreclosure proceedings. This enables you to retain your homes and avoid the upheaval of relocation.

How Long After Bankruptcy Can You Purchase a Home?

As already mentioned, you have to wait up to four years to take out a mortgage after discharge of Chapter 7 bankruptcy. This depends on how long you can get your credit and finances into good shape and the type of mortgage you’re applying for.

Here’s a table for the waiting periods for different loan types:

Loan TypeChapter 7 Waiting PeriodChapter 11 Waiting PeriodChapter 13 Waiting Period
Conventional Loan4 years (2 years with extenuating circumstances)4 years (2 years with extenuating circumstances)2 years from the discharge date4 years from the dismissal date(2 years with extenuating circumstances)
FHA Loan2 years (1 year with extenuating circumstances)2 years1 year
VA Loan2 years2 years1 year
USDA Loan3 years3 years1 year
Non-QM LoanNo waiting periodNo waiting periodNo waiting period

Understanding What You May Qualify For

Conventional Loan

Conventional mortgages follow guidelines set by Fannie Mae and Freddie Mac, which require stricter criteria than government-backed loans. To qualify for this type of loan after bankruptcy, you generally need to wait four years after the discharge or dismissal of your debts. If you can document extenuating circumstances, the waiting period may be reduced to two years.

Additionally, you must have a minimum credit score of 620, a minimum down payment of 3%, and re-established credit following the bankruptcy.

Federal Housing Administration (FHA) Loan

An FHA loan provides more lenient qualifying guidelines, which make it accessible to borrowers with low credit scores and smaller down payments.

After meeting the waiting period requirement, FHA borrowers must demonstrate responsible credit management post-bankruptcy. Typically, the standard waiting period is two years, but this can be reduced to one year in cases of extenuating circumstances.

The minimum down payment is 3.5%, or 10% if the credit score is below 580. Court permission is required if still in repayment.

Department of Veterans Affairs (VA) Loan

If you’re a service member or a veteran, you or your family may be eligible for a loan backed by the VA. VA loans offer lenient credit history requirements, which can be advantageous if you’re seeking a home loan after bankruptcy.

Typically, there’s a two-year waiting period, but this can be reduced to one year for extenuating circumstances. While the VA does not set a minimum credit score, many lenders require a score of 620. Additionally, no minimum down payment is required.

However, if a VA loan was discharged in Chapter 7 bankruptcy, check with your loan officer to confirm eligibility for a no-down payment loan, especially if a prior home was in foreclosure.

United States Department of Agriculture (USDA) Loan

This type of loan assists borrowers in purchasing a home in rural areas. To be eligible, your income must not exceed 115% of the median income for the region.

These fixed-rate mortgages come with 30-year terms. As for the waiting period, it’s typically three years, but this may be reduced to two years with evidence of extenuating circumstances.

While there’s no set minimum credit score, many lenders require 640. Additionally, there’s no mandatory down payment, but income and rural location restrictions apply.

Non-Qualified Mortgage (Non-QM) Loan

As the name suggests, non-qualified mortgage loans fall outside the federal guidelines for a qualified mortgage. These loans often feature risky elements, like interest-only payments, balloon payments, or terms exceeding 30 years.

While these loans can be more expensive and riskier for borrowers, there’s no standard set of requirements. Some lenders may impose no waiting period, while credit score and down payment criteria vary among lenders.

Borrowers must adhere to their lender’s specific guidelines when seeking non-QM financing.

Brenna Carles

Brenna Carles

I help people who want a place to call their home, where memories can be made, and stories to be shared. Where i can help clients build generational wealth for years to come. I provide the perfect combination of southern hospitality and relentless knowledge and passion for mortgage lending as if you were family.