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Qualifying for a mortgage after a Chapter 7 bankruptcy

| Jan 13, 2021 | chapter 7 bankruptcy

For many of those people in New York that are struggling with debt, the freedom from collection activities from creditors that bankruptcy offers is a welcome relief. A Chapter 7 bankruptcy is often a popular option seeking bankruptcy protection. Indeed, per the American Bankruptcy Institute, nearly 80% of personal bankruptcy filings in New York in 2020 were Chapter 7 cases.

The popularity of Chapter 7 is no doubt due to the benefit that it offers of having certain debts discharged. Yet one major impact that those considering such an action, however, that one cannot overlook is the impact that it has on one’s personal credit rating. That rating affects their ability to secure financing (such as a home mortgage).

How long does one have to wait?

Many often wonder how long they must wait after filing for a Chapter 7 bankruptcy to qualify for a mortgage. There actually is no statutory standard that dictates how long a lender must wait until qualifying an applicant with a bankruptcy on their record for a mortgage. However, according to the website, a review of mortgages extended to such applicants reveals certain waiting periods for different types of mortgages. These include:

  • Conventional mortgages: 4 years
  • USDA mortgages: 3 years
  • FHA and VA mortgages: 2 years

Should one consider waiting?

If one can offer a significantly large down payment, they may not have to wait very long at all to qualify for a mortgage. Yet one may want to consider waiting in order to qualify for a better interest rate (which will save one money throughout the term of the loan). That will also provide one with more time to save up an even larger down payment (thus allowing them to borrow less to buy a home).


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