No one is immune from the recent economic recession including our country’s veterans and current military personnel.
So now many of them are in the position of looking for a new mortgage after having gone through a bankruptcy.
Some of the most common questions asked regarding bankruptcies and VA loans are:
- Can I even get a VA mortgage after a bankruptcy?
- If so, how long do I have to wait?
- What can I do to increase the likelihood of getting approved for a new VA mortgage after a bankruptcy?
The good news is that as of today, the VA underwriting guidelines are far more relaxed than the guidelines for conventional or FHA loans.
How bankruptcies VA Mortgages…
Chapter 7 bankruptcies are essentially when the borrower is freed of all debt from creditors, and your financial slate is wiped clean. VA mortgage guidelines typically call for a 2 year waiting period after a Chapter 7 bankruptcy before you can receive VA financing again.
We say “typically” because there are extremely rare circumstances in which the 2 year waiting period will be reduced to 1 year. You would have to be able to show that circumstances beyond your control (such as losing a job or medical problems) were the driving force behind your financial hardship.
This 2 year requirement may seem harsh, but compared to the guidelines for conventional loans that call for a 4 year waiting period, it really is quite reasonable.
Chapter 13 bankruptcies involve the establishment of a repayment plan instead of being cleared of debt you pay a court ordered settlement of the debt.
Veterans and military personnel can qualify with VA loan guidelines even when they are still in Chapter 13 bankruptcy. However, you will have to show that you have made a minimum of 12 payments on-time and be approved by the court trustee for the loan.
Please note that once the Chapter 13 bankruptcy is complete, veterans are instantly eligible for VA loans again, whereas conventional loan guidelines still require a 2 year waiting period.
What You Can Do Now:
Upon the discharge of your bankruptcy, send a copy of all your discharge paperwork (including all applicable schedules) to the three credit bureaus: Equifax, Experian, and TransUnion.
- Reestablish your credit as soon as possible if you do not have any creditors after the bankruptcy process. Remember, approving a potential borrower with no credit can be just as difficult as approving a borrower with bad credit!
- Once you reestablish credit, be sure to always make payments on time.
- Get in the habit of checking your credit at a minimum of once a year. This will give you an idea of where you stand, especially when you begin shopping for a VA mortgage.
TIP: There are many ways your lender can help you reestablish credit, but they take time. Never wait until your 12 payment or 2 year wait is up, because you may need 1-2 years to reestablish your credit. Do it now! Contact and shop for the loan officer you would like to use for your loan, now. He or she will help you now, in order to earn your business in the future.
Tim Swierczek, MMS, CRMS