I get numerous VA loan questions in regards to bankruptcies (BK) & foreclosures & trying to decide how long the borrower has to wait after their bankruptcy before they become eligible for a VA home loan. Or is there anything they can do while they wait to help their chances of getting approved for a VA loan one time their waiting period is up? So let's take a glance because as of right now the VA requirements are much more lenient than both conventional & FHA's.
Chapter 7 Bankruptcy
First, a chapter 7 bankruptcy involves a complete discharge of debtors. One time the petition is file & accepted by the court & the BK is finalized the borrower is released from liability from the creditors. Usually, with a chapter 7 bankruptcy the VA underwriting guidelines require a 2 years waiting period from the discharge date of the bankruptcy before financing becomes available. There's, however, positive uncontrollable circumstances such as medical conditions or job loss that permit for financing 1 year after the discharge date but these are rare. To contrast this with conventional guidelines at the time of the editorial Fannie Mae is now requiring a 4 year waiting period after a chapter 7 BK.
Chapter 13 Bankruptcy
A chapter 13 on the other hand is called a wage earners plan. A trustee is appointed from the court & a repayment plan is negotiated. A veteran may well be eligible for a VA mortgage while in the chapter 13 bankruptcy; but will require to have at least made 12 on time payments & have approval for the loan by the court trustee. Also, after the chapter 13 is done the veteran borrower is eligible immediately. Fannie Mae requires a 2 year waiting period after the discharge.
Foreclosure
The VA guidelines state the foreclosure period follow the same rules as the Chapter 7 Bankruptcy. Fundamentally, the veteran borrower needs to wait 2 years. Fannie Mae requires a 5 year waiting period now after the completion of the foreclosure & FHA is 3 years, ouch.
Tips for after a Bankruptcy
As a top VA lender that has handled their fair share of bankruptcies we have put together a few tips that borrower can put to go use.
· Don't ever miss payments on your creditors going forward. This may sound like a no brainer but nothing will take a score down faster than missing a payment with a creditor and an underwriter will be taking a look at your credit with a fine tooth comb after the bankruptcy.
· I strongly recommend that a person reestablish at least 3 trade lines to build credit & also offset a number of the negative blemishes that they bankruptcy has created. I cannot tell borrower that fall in to this section that this is important because for plenty of individuals they decided to pay their bills with strictly money. While Dave Ramsey & others would find this financially wise decision to make when it comes to apply for a mortgage without lovely credit score you may not get financing. I recommend credit cards in case you can get approved for them or a secured credit card if financing becomes difficult. Then basically keep a tiny balance on the card & pay it off every month.
· I recommend after the bankruptcy has been discharged that you mail in a full copy of your discharge paperwork with all of the appropriate schedules the four credit bureaus Equifax, Experian & TransUnion. Often time a number of the accounts included in the bankruptcy won't reflect that exactly.
· I also recommend you start by pulling your credit at least one time a year from each of the nationwide consumer credit reporting companies. Keep track of what is gone on & make positive there's no inaccuracies by the time you are prepared to apply for a VA loan.
Of work the VA loan bankruptcy guidelines could modify or be amended in the future but so far all of the VA guidelines have stayed unchanged for the last several years.
By: Rashid
Chapter 7 Bankruptcy
First, a chapter 7 bankruptcy involves a complete discharge of debtors. One time the petition is file & accepted by the court & the BK is finalized the borrower is released from liability from the creditors. Usually, with a chapter 7 bankruptcy the VA underwriting guidelines require a 2 years waiting period from the discharge date of the bankruptcy before financing becomes available. There's, however, positive uncontrollable circumstances such as medical conditions or job loss that permit for financing 1 year after the discharge date but these are rare. To contrast this with conventional guidelines at the time of the editorial Fannie Mae is now requiring a 4 year waiting period after a chapter 7 BK.
Chapter 13 Bankruptcy
A chapter 13 on the other hand is called a wage earners plan. A trustee is appointed from the court & a repayment plan is negotiated. A veteran may well be eligible for a VA mortgage while in the chapter 13 bankruptcy; but will require to have at least made 12 on time payments & have approval for the loan by the court trustee. Also, after the chapter 13 is done the veteran borrower is eligible immediately. Fannie Mae requires a 2 year waiting period after the discharge.
Foreclosure
The VA guidelines state the foreclosure period follow the same rules as the Chapter 7 Bankruptcy. Fundamentally, the veteran borrower needs to wait 2 years. Fannie Mae requires a 5 year waiting period now after the completion of the foreclosure & FHA is 3 years, ouch.
Tips for after a Bankruptcy
As a top VA lender that has handled their fair share of bankruptcies we have put together a few tips that borrower can put to go use.
· Don't ever miss payments on your creditors going forward. This may sound like a no brainer but nothing will take a score down faster than missing a payment with a creditor and an underwriter will be taking a look at your credit with a fine tooth comb after the bankruptcy.
· I strongly recommend that a person reestablish at least 3 trade lines to build credit & also offset a number of the negative blemishes that they bankruptcy has created. I cannot tell borrower that fall in to this section that this is important because for plenty of individuals they decided to pay their bills with strictly money. While Dave Ramsey & others would find this financially wise decision to make when it comes to apply for a mortgage without lovely credit score you may not get financing. I recommend credit cards in case you can get approved for them or a secured credit card if financing becomes difficult. Then basically keep a tiny balance on the card & pay it off every month.
· I recommend after the bankruptcy has been discharged that you mail in a full copy of your discharge paperwork with all of the appropriate schedules the four credit bureaus Equifax, Experian & TransUnion. Often time a number of the accounts included in the bankruptcy won't reflect that exactly.
· I also recommend you start by pulling your credit at least one time a year from each of the nationwide consumer credit reporting companies. Keep track of what is gone on & make positive there's no inaccuracies by the time you are prepared to apply for a VA loan.
Of work the VA loan bankruptcy guidelines could modify or be amended in the future but so far all of the VA guidelines have stayed unchanged for the last several years.
By: Rashid
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