We are talking to folks every week who lost a job in the last several years, lost medical insurance – or had some other tragedy that made it necessary for them to take steps they never thought they would have to. The reality is that in today’s economic conditions, unfortunately, bankruptcy has been the only way a family could get a fresh start. As a Veteran, considering a home purchase in North Carolina, you need to know a few things about how Bankruptcy can effect your ability to buy a home.
So, can you get a VA Guaranteed Home Loan if you have a bankruptcy? The short answer is YES!
The good news is that as of today, the VA underwriting guidelines are far more relaxed than the guidelines for other mortgage loan types (USDA, for instance, makes you wait 3 full years before you are eligible for a mortgage). The rules for applying for a VA Mortgage Loan after Bankruptcy are different based upon what type of Bankruptcy you took and weather you were able to KEEP your home, or if it was included in the bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcies are essentially when the borrower is freed of all liability from creditors. VA loan guidelines typically call for a 2 year waiting period after a Chapter 7 bankruptcy before you can receive VA financing again.
There are rare circumstances in which the 2 year waiting period will be reduced to 1 instead. You would have to be able to show that circumstances beyond your control were the driving force behind your financial hardship. For instance, we’ve seen this done when a spouse died… we also had a situation where a couple had a children that were less than 12 months apart in age, and the wife could not afford childcare and had to quit her job. If you can prove the extreme circumstance – then we might be able to make it work after the 12 month waiting period.
As mentioned earlier, USDA Home Loan guidelines call for a 3 year waiting period, and conventional loans require a 4 year waiting period. IF you had a home that was included in the Chapter 7 Bankruptcy, and it was foreclosed upon – then VA Underwriters also require a three year waiting period.
Chapter 13 Bankruptcy
Chapter 13 bankruptcies involve the establishment of a repayment plan instead of being cleared of liability immediately.
Veterans and military personnel can qualify for a VA mortgage loan, based upon current 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 new mortgage loan. This is VERY, VERY RARE… but again, we saw this happen with a couple who had a restaurant, field Chapter 13, they closed their restaurant and went to manage a National Chain Restaurant. That was approved… it just takes the right circumstances.
Once you complete a Chapter 13 Bankrutpcy, VA Mortgage Loan Guidelines allow you to immediately apply for a mortgage! Yippee! Conventional Loan guidelines, for instance require a 2 year waiting period!
Don’ Forget About Your Credit Score
All of this talk about being able to qualify for a VA mortgage Loan after (or while) you have a Bankruptcy, assumes that you have a credit score that’s recovered from this event, and is high enough for the Underwriters to approve. The Veteran’s Administration does not make these mortgage loans – they only insure them. The VA does not have a minimum credit score that they will insure… however, Underwriters have a minimum Credit Score that they will APPROVE… and these days, that number is a MINIMUM of 620… and some underwriters will only allow loans for those Veterans with scores of at least 640. So, even after you have finished the bankruptcy process, there are still actions you need to take to get your credit scores up and increase your likelihood of qualifying for a VA loan after bankruptcy.
- Re-establish 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 is almost impossible! We NEED a credit history that’s Clean For At Least 12 Months, with 3 Tradelines! You can re-establish credit using secured credit cards, apply for credit with FingerHut, or you might be able to be added to a credit card with a family member.
- Once you re-establish credit, be sure to always make payments on time... and be sure that the folks who are extending credit to you are reporting those payments to all three credit repositories! If you are paying for a car over time, and making payments to the dealer – he’s probably not reporting those on time payments to the credit bureaus! Credit Unions often will not report to all three repositories either, because each submission costs them money!
- 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 loan.
- 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. This is important… it’s also important to KEEP the paperwork for at least 7 years.
We do TONS of VA Mortgage Loans in NC. We have bases at Fort Bragg, Pope Airforce Base and Camp Lejuene… plus, there are TONS of Veterans who live in Johnston County, Wake, Harnett and Pinehurst! If you qualify for a VA mortgage loan in NC call Steve Thorne, 919-649-5058. We have BEST Mortgage Loan Rates Available!