Planning for a Mortgage Application After Bankruptcy
Getting approved for a mortgage after a bankruptcy has always been tricky. Now, it is very difficult in the current mortgage climate, but it is not impossible.
The best way is to plan ahead, the same as with any real estate or mortgage transaction. The time to worry about how to get the next loan is before filing bankruptcy. Most people do not have a plan and the process after the BK is a lot more difficult.
All lenders follow the same basic underwriting rules for standard loan types. If you understand these rules it will help while planning the next move.
For conventional mortgages a Chapter 7 or 11 Bankruptcy must usually be discharged for 4 years. In rare exceptions such as a BK caused by the death of a wage earner it may shorten the waiting period to only 2 years. And a Chapter 13 might also get by with only 2 years. Notice I did not say an exact period but used words like “usually” or “might.”
Borrowers with a bankruptcy in the last 7 years will always require manual underwriting by an actual live mortgage underwriter as opposed to automated underwriting software. They will look at the entire loan application, not just the credit report. So the entire application must make sense to the underwriter.
For example, if the BK was caused by the death of the primary wage earner and the surviving spouse has made several late payments after the BK was discharged then the … Read more