In today’s turbulent economic atmosphere, financial hard times can hit any of us. If you are hoping to get a VA home loan but you have recently been through bankruptcy, you may be wondering what kind of restrictions you will face. The good news is that it is possible to get a VA loan after bankruptcy, but you might have to wait to make it happen.
Post-Bankruptcy Restrictions
As a military veteran or active-duty service member, whether or not and how soon you can qualify for a VA loan will depend on several factors including the type of bankruptcy you filed, the reasons for your bankruptcy, and your ability to meet the standards VA eligibility requirements. In some cases, it may actually be easier to get a VA loan after bankruptcy than other types of mortgages.
Chapter 7 Bankruptcy
A Chapter 7 Bankruptcy requires that a trustee in the case sells off all your nonexempt property, including things like cars and real estate to pay off outstanding debts. (Some assets may be deemed exempt from sale by the courts.) After that is complete, any remaining debts are discharged, and the debtor basically gets to start over with a clean slate. However, because this type of bankruptcy releases the applicant from further financial responsibility, it stays on a credit report for up to 10 years and it may take up to two years after filing to be considered for a VA home loan. To qualify after those two years, potential borrowers will need a minimum credit score somewhere between 580-640 as well as have no late payments on their credit record since their bankruptcy or have no new accounts in collections.
Chapter 13 Bankruptcy
Also known as “reorganization bankruptcy,” Chapter 13 works out a repayment plan for debtors to hold on to certain assets. The repayment period typically takes between three to five years, after which any remaining debts are discharged. While your credit score will take an identical hit no matter what type of bankruptcy you file, Chapter 13 may help you apply for a VA home loan sooner. This version shows a little more sense of responsibility and ownership of your debt problems and only stays on your report for seven years. The minimum wait time to apply for a VA loan after a Chapter 13 bankruptcy filing, is only 12 months. However, you will have to have your new loan approved by the court or your appointed trustee before you can proceed. You will also need to have a credit score of at least 580-640, have made all payments in your debt repayment plan on time, and have no accounts in collections or any other late payments.
Making Your Post-Bankruptcy VA Application More Attractive
While there are mandatory waiting periods after bankruptcies before getting another mortgage, you can use that time to improve your chances of being approved by rebuilding your credit. The most important thing you can do is to make timely payments for all your debts. It is also crucial to bring down any other outstanding debt obligations, including student loans, car loans, and credit card accounts. This will improve your debt-to-income ratio. Try to refrain from opening any new lines of credit during your waiting period as well.
While you may have to wait up to two years after bankruptcy, it is absolutely possible to still qualify for a VA loan. Talk with us to find out the specific rules and qualifications.
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These materials are not from HUD or FHA and were not approved by HUD or a government agency.