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Securing a mortgage after a Chapter 7 bankruptcy

| May 27, 2019 | Chapter 7 |

Hackettstown residents who feel as though they are drowning in debt may find a Chapter 7 bankruptcy to be their best option at getting back to enjoying a comfortable financial position. Indeed, the benefit of having certain debts discharged is likely one of the primary reason why Chapter 7 is the most popular form of personal bankruptcy (as evidenced by the fact that the American Bankruptcy Institute reports that an average of over 62 percent of all cases in 2018 were filed under this chapter). Yet one question that those considering a Chapter 7 bankruptcy should ponder is how long such an action might prevent them from securing a traditional loan again (specifically a mortgage). 

While a personal bankruptcy can help one struggling with debt, it also has a significant impact on their credit rating. Lenders may be hesitant to loan them money out of fear that their recent financial struggles make it more likely that they might default on a loan. There are not, however, any set regulations that prevent a lender from offering a mortgage to one who has recently filed for bankruptcy. If a bankruptcy filer has a large enough down payment to offset any risk, they might even qualify for a mortgage soon after their filing date. 

However, if one had immediate access to such resources, it is unlikely they would have qualified to file under Chapter 7 in the first place. Thus, it is reasonable that one who files a Chapter 7 bankruptcy should expect to wait before being able to secure a mortgage. Per, Chapter 7 filers typically wait the following time periods before qualifying through common mortgage programs: 

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

After these waiting periods, one might be able to secure an interest rate similar to that of other borrowers.