Going through a bankruptcy can be a troubling time for most people. The fear of damaged credit and inability to secure loans in the future is often a big source of fear. However, securing a mortgage loan after a bankruptcy is not impossible. While it may take more planning and effort than in other circumstances, many people have been successful in owning a home again after a bankruptcy.
There are several types of mortgage loans, each carrying their own qualification standards and restrictions for potential borrowers.
A FHA loan is a federally insured mortgage loan. In most cases, FHA loan lenders review a potential borrower’s credit standing and past payment history closely when approving applications. The biggest reason for denying a borrower a FHA loan is delinquent account standings and slow payment history. The good news is that borrowers are able to erase delinquent accounts in bankruptcy, which gives them a better chance at securing a FHA loan than remaining in poor financial standing. The general rule is that potential borrowers may apply for a FHA loan two years after exiting a bankruptcy and three years after a foreclosure.
A conventional loan is the most difficult type of mortgage loan to obtain because they are privately insured loans. These loans carry strict approval standards and are often less tolerant of past bankruptcies or foreclosures. Although a conventional loan lender will consider applications two years after a bankruptcy, they are less likely to approve potential borrowers. Further, if an application is approved most borrowers find they are only able to secure loans with higher than average interest rates or sub-par loan terms.
VA loans are a special type of mortgage loan offered to military veterans or surviving spouses. These loans do take into consideration an applicant’s credit standing and payment history, but can be more lenient in their approval ratings than compared to a conventional or FHA loan. VA loans typically offer more flexibility in borrowing for those that qualify; however, they also require a two year wait after a bankruptcy or three years after a foreclosure.