Most people I meet with have a lot of questions about the short term and long term consequences of filing bankruptcy, short selling their houses, and being foreclosed on. Many of these bankruptcy clients ask how long they must wait before they buy a home again after bankruptcy, short sale, and foreclosure, and mistakenly think that they will have to wait 7 to 10 years to purchase another home. I explain that although the bankruptcy filing will remain 10 years on your credit report, you still can get credit to purchase a house.
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There are different timelines required to wait after filing bankruptcy, participating in a short sale, or having a foreclosure in order to get a home loan under FHA, VA, and conventional financing. Understand that these guidelines are based on current FHA, VA, and conventional financing parameters and can be changed. Ask a mortgage lender if these time lines have changed. Chapter 7 bankruptcy: FHA requires 2 years from date of discharge or dismissal with an exception for extenuating circumstances. VA requires 2 years from date of dismissal or discharge. Conventional Financing requires 4 years from date of dismissal or discharge.
Chapter 13 bankruptcy: FHA requires 1 year of Chapter 13 payments that have been made on time. VA mandates 1 year of Chapter 13 payments made on time. Conventional Financing requires 2 years from Chapter 13 discharge or 4 years from date of dismissal.
Foreclosure: FHA requires 3 years from date of foreclosure completion. VA mandates 2 years from date of foreclosure completion. Conventional financing requires 7 years from date of foreclosure completion.
Short Sale: FHA mandates 1 year from date of short sale if there were no late payments. If there were late payments, FHA mandates 3 years from date of short sale. VA mandates 2 years from date of short sale. Conventional Financing mandates 2 years to get a maximum 80% LTV, 4 years to get a maximum 90% LTV.
Although bankruptcy does have a negative affect on your credit, you can get your finances in order and purchase a home within a short time. It is also interesting to note how differently FHA, VA, and Conventional Financing treat bankruptcy Chapter 7, Chapter 13, short sales, and foreclosures. Based on current lending criteria, it appears more prudent to file a bankruptcy and conduct a short sale at the same time rather than allow the house to go into foreclosure. For instance, Conventional Financing requires a short sale to wait 2 year to get a 80% LTV compared with a foreclosure to wait 7 years.
Contact an experienced bankruptcy attorney in your state about your specific case because no two cases are alike. This article is not intended to provide legal advice but merely to provide information.
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