Buying A House After Bankruptcy 2023: FHA, Conventional, VA, USDA, Non-QM

Buying a house after bankruptcy is completely possible if you’ve re-established your credit since the event. In some cases, you can apply for a mortgage in as little as one year after the discharge or repayment start date. 

Here’s how to become a homeowner again. 

In this article:

Summary table: Buying a house after bankruptcy

Below is an ultra-simplified table of bankruptcy waiting periods. Be sure to see the detail for each loan type below for more insight into requirements.

Summary: Waiting periods after bankruptcyChapter 7Chapter 11Chapter 13
Conventional Standard
(Fannie Mae & Freddie Mac)
4 years4 years2 years
Conventional w/ extenuating circumstances
(Fannie Mae & Freddie Mac)
2 years2 years2 years
FHA Standard2 years1 year1 year
FHA w/ extenuating circumstances1 year1 year1 year
VA Standard2 years2 years1 year
VA w/ extenuating circumstances2 years2 years1 year
USDA Standard3 years1 year1 year
USDA w/ extenuating circumstances1-3 years1 year1 year
Non-QM1 day1 day1 day

Fannie Mae / Freddie Mac conventional loan bankruptcy waiting periods

Fannie Mae/Freddie Mac Waiting PeriodsStandardExtenuating Circumstances
Chapter 7 Bankruptcy4 years from discharge or dismissal
5 yrs if >1 BK in last 7 yrs
2 years from discharge or dismissal
3 yrs if >1 BK in last 7 yrs
Chapter 11 Bankruptcy4 years from discharge or dismissal
5 yrs if >1 BK in last 7 yrs
2 years from discharge or dismissal
3 yrs if >1 BK in last 7 yrs
Chapter 13 Bankruptcy2 years from discharge
4 years from dismissal
5 yrs if >1 BK in last 7 yrs
2 years from discharge or dismissal
3 yrs if >1 BK in last 7 yrs

If you’re looking to buy a home after bankruptcy with a conventional loan, it’s important to determine what type of bankruptcy it was and whether it was discharged or dismissed.

For Chapter 7 or 11, you’ll need to wait four years from the discharge or dismissal date. With extenuating circumstances, you may be eligible in two years.

Chapter 13 bankruptcies only require two years from discharge since the lender can assume that it took some time to complete the payment plan. A dismissal means the bankruptcy was never completed. No additional time passed for the payment period, hence the longer waiting period for a dismissal.

Multiple bankruptcies within the last seven years will require longer-than-standard waiting periods.

FHA loan bankruptcy waiting periods

FHA Waiting PeriodsStandardExtenuating Circumstances
Chapter 7 Bankruptcy2 years from discharge if re-established credit or no new credit1 year from discharge with demonstrated ability to manage finances
Chapter 11 Bankruptcy1 yr from start of payment period w/permission from trustee1 yr from start of payment period w/permission from trustee
Chapter 13 Bankruptcy1 yr from start of payment period w/permission from trustee1 yr from start of payment period w/permission from trustee

You can buy a home again after just two years after a discharged bankruptcy with a FHA loan. That waiting period drops to just one year for those with a documented extenuating circumstance (more on what that is later). 

A Chapter 11 or 13 bankruptcy does not need to be discharged. If you’ve completed 12 full on-time payments in your repayment plan, you can apply for an FHA loan.

Keep in mind that with Chapter 11 and 13 bankruptcies, you’ll need permission from the court to enter into the mortgage. Make sure your trustee will grant permission before applying.

VA loan bankruptcy waiting periods

VA Waiting PeriodsStandardExtenuating Circumstances
Chapter 7 Bankruptcy2 years from discharge date2 yrs from discharge; 1 yr from start of payment period is unlikely, but possible w/perfect payments and permission from trustee
Chapter 11 Bankruptcy1 yr from start of payment period w/perfect payments and permission from trustee1 yr from start of payment period w/perfect payments and permission from trustee
Chapter 13 Bankruptcy1 yr from start of payment period w/perfect payments and permission from trustee1 yr from start of payment period w/perfect payments and permission from trustee

VA is one of the more lenient programs when it comes to buying a house after bankruptcy. A bankruptcy discharged more than two years ago can be ignored, according to VA guidelines.

A Chapter 13 bankruptcy where the payment period is complete can also be ignored. If the payment period is not complete, you can apply for a VA loan after 12 months of on-time bankruptcy payments with permission from the court.

USDA loan bankruptcy waiting periods

USDA Waiting PeriodsStandardExtenuating Circumstances
Chapter 7 Bankruptcy3 years from discharge; Automated underwriting system may issue an approval less than 3 years from discharge3 years from discharge; Automated underwriting system may issue an approval less than 3 years from discharge
Chapter 11 Bankruptcy1 year from start of payment period with automated underwriting approval and permission from trustee1 year from start of payment period with automated underwriting approval and permission from trustee
Chapter 13 Bankruptcy1 year from start of payment period with automated underwriting approval and permission from trustee1 year from start of payment period with automated underwriting approval and permission from trustee

USDA does not consider a bankruptcy discharged more than three years ago as adverse credit. The lender can completely ignore it.

The agency does not publish specific timeframes for exceptions. Instead, its automated underwriting system can issue an approval prior to the three-year mark if the file is strong.

Compensating factors that may help you get approved for a USDA loan after bankruptcy include a good credit score, zero late payments on new debt since the bankruptcy, on-time rent payments, substantial cash reserves, and making a down payment, even though one isn’t required.

Non-QM loan bankruptcy waiting periods

Non-QM Waiting PeriodsStandardExtenuating Circumstances
Chapter 7 Bankruptcy1 day. Eligibility standards vary.1 day. Eligibility standards vary.
Chapter 11 Bankruptcy1 day. Eligibility standards vary.1 day. Eligibility standards vary.
Chapter 13 Bankruptcy1 day. Eligibility standards vary.1 day. Eligibility standards vary.

Non-QM loans are not regulated in the same way as conventional and government loans. Lenders can make their own rules and decisions.

This flexibility allows them to approve an applicant as little as one day after bankruptcy or even foreclosure.

But there is a catch: you’ll probably need a large down payment and will pay higher rates. But if your goal is to just get into a home as quickly as possible, a non-QM loan could help. And, you can always refinance into another loan type when you meet time periods detailed above.

Lenders can add extra rules

The above guidelines are straight out of the rulebooks. But that doesn’t mean every lender adheres to published rules.

While they will never be less strict, they will often add restrictions when issuing these loans.

This is because each agency gives lenders permission to add “overlays,” which are higher standards than the agencies maintain. 

The good news is, though, that you can keep shopping for a lender that underwrites “by the book.” Find another lender if you meet agency guidelines but are still denied.

Related:

What is an extenuating circumstance?

An extenuating circumstance is an event that is beyond your control that ruined your finances.

Some examples are

  • Prolonged strikes
  • Medical bills
  • Death of a primary wage earner

The lender is looking for events that weren’t a result of financial mismanagement. For instance, if you were in a car wreck which caused income loss and mounting bills.

And even with a good reason, you may not be approved for shorter waiting periods.

For instance, FHA does not consider the following events “beyond your control”:

  • Divorce 
  • Job loss
  • Inability to sell a home

In all cases, expect to wait the full period. Each loan program has a different definition of “beyond your control” and “financial mismanagement.” It’s best to speak to an experienced lender and have your file fully underwritten to get a final answer.

The ideal scenario for approval

Whether you’re looking to qualify for shorter waiting periods or not, here’s what the lender is looking for when deciding to approve you after bankruptcy.

Timeline to buy a house after bankruptcy with waiting period.

The less-than-ideal scenario, but still acceptable

It’s not just a matter of waiting long enough after a bankruptcy.

How you managed credit and bankruptcy payments afterward is heavily scrutinized by the lender. Just one late payment after bankruptcy can derail your mortgage approval.

Example approval scenario: You purchased a home when you were 22 before you knew how to budget or control spending. You filed for bankruptcy. You made an effort to repay creditors and have made all payments on time. You have since received new credit cards and an auto loan. You may be approved, despite early financial mismanagement.

When does the waiting period start and end?

  • Fannie Mae/Freddie Mac: Discharge or dismissal
  • FHA: Measured from the discharge date or start of payment period, depending on bankruptcy type
  • VA: Discharge date or payment start date depending on bankruptcy type
  • USDA: Discharge or start of payment date depending on bankruptcy type

Keep in mind that the end of the waiting period always refers to the application date, not when you can close on the home. You can’t apply three months prior to the end of the waiting period so that you can close the day after.

You must apply after the waiting period is over, so your actual waiting period could be 60-90 days longer as measured by when the loan closes.

Help! I’m on the CAlVRS list!

The Credit Alert Verification Reporting System (CAlVRS) alerts the lender that you are in default on a federal debt, including a previous government-sponsored mortgage, student loan, or SBA loan. 

You are not eligible for an FHA, VA, or USDA loan if you’re on the list.

If your bankruptcy resulted in a foreclosure or default on a government-backed loan, there’s a good chance you are on the list. If so, you are ineligible for a new government loan for three years.

To be removed from the list as soon as possible, pay the federal debt in full.

Make sure your lender pulls CAIVRS when you request a homebuying pre-approval.

Related: Buying a house after foreclosure

Some wonder about foreclosure waiting periods. In general, they are longer than for bankruptcy.

This makes sense: a foreclosure means history of housing debt non-payment, the same kind of debt you’re seeking with a mortgage.

Bankruptcy is essentially default on other types of debts, not necessarily mortgages.

If you’ve had a foreclosure, see: Buying a House After Foreclosure: FHA, Conventional, VA, USDA, Non-QM

FAQ

What if a foreclosure was included in the bankruptcy?

You are not legally required to repay the mortgage debt, so it won’t factor into your debt ratios. However, if the home’s title is still in your name, the lender may include taxes, insurance, and HOA dues into your debt-to-income. Additionally, you may be on the CAlVERS list if you defaulted on a federal debt, making you ineligible for a new government-backed loan.

How long after a Chapter 7 bankruptcy can I buy a home?

You can apply in as little as 1 year after the Chapter 7 discharge date with an FHA loan. The bankruptcy must have been caused by circumstances outside your control and not due to financial mismanagement. And, you need to demonstrate rehabilitated credit. Some lenders will impose a 2-year waiting period. 

Can I apply for a mortgage if my spouse filed for bankruptcy?

Yes. While you won’t be able to use your spouse’s income for qualification, you can apply under your name only. If you are the primary wage earner, this is a good solution. You can use joint accounts for the down payment and closing costs, or your spouse can gift you the money.

I’m considering bankruptcy. Should I avoid it?

If you want to purchase a home in the next 2 to 4 years, you should avoid bankruptcy if possible. However, for some people it’s a good way to “start over.” Just don’t file for bankruptcy unless you have addressed issues that led you to this point, or it was due to a one-time event that is not likely to recur. It’s a big decision that could affect you for 7-10 years so consult an attorney and financial planner.

Many ways to buy a home after bankruptcy

No one is perfect, and even the most prepared individuals must file bankruptcy when life deals them a blow.

Fortunately, there are ways to own a home again after bankruptcy with some work and perseverance.

Sources:
Fannie Mae Selling Guide
Freddie Mac Selling Guide
USDA Handbook
VA Handbook

Author

  • Tim Lucas

    Tim Lucas (NMLS 118763) has 20 years of hands-on mortgage industry experience helping everyone from first-time buyers to experienced investors. He purchased his first home at 26 with just $1,100 out-of-pocket and now owns real estate worth $2.4 million. Tim was the managing editor at national websites TheMortgageReports.com and MyMortgageInsider.com and has been featured in publications such as Time, U.S. News, MSN, and more. He is a licensed loan originator (NMLS 118763). Connect with Tim on LinkedIn, Twitter, and TikTok.