Can I Get A VA Mortgage After a Bankruptcy?

by Tim Swierczek on April 27, 2011

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

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

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

NMLS# 103522

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