A common question nowadays is, “I went through a bankruptcy (or a foreclosure or a short sale). How long do I have to wait to buy again?” The answer may surprise you.
Let’s start with Bankruptcy
If you went through a Chapter 7 Bankruptcy (where your debts are wiped out and you start over), you need to wait 2 years from the discharge date in order to apply for government loan like FHA or VA, or 4 years for a conventional loan. The major difference between those loan types is that government loans only allow financing a primary residence. If you are looking to finance a vacation home or investment property, you will need a conventional loan.
If you went through, or are currently going through a Chapter 13 Bankruptcy (where you are making payments toward settling your debts), you can get a government loan after 12 months of on-time payments. You will also need permission from the court to enter into a mortgage. For a conventional loan, you will need 2 years from the discharge date, or 4 years from the dismissal date.
If you had a foreclosure, you will need to wait 2 years for a VA loan, 3 years for an FHA, or a full 7 years before applying for a conventional loan.
The waiting periods after a short sale are similar to foreclosure, with the exception of conventional loans. You will need 4 years from the short sale date to qualify again for a conventional loan. FHA makes you wait 3 years, but if you happened to get through the short sale without making any late payments on the mortgage, the waiting period is waved. VA actually doesn’t have a required waiting period after a short sale, but they do require the most recent 12 months of payments be on-time.
Here is a useful chart to reference how long you have to wait after a significant credit event before you can buy again:
What about a Modification?
Many lenders look at a loan modification the same as other significant credit events. If you apply for a loan after doing a loan mod, be prepared to explain the circumstances around it, and supply full documentation about the details of the modification. It is very important that your payment history post-modification is spotless. The underwriter will be looking at your mortgage and other credit for any signs that the financial hardship that led up to the modification has not been resolved.
It is important to note that some banks have stricter guidelines than others, and may require longer waiting periods. On the flip side, if you had circumstances outside of your control leading up to the event (like the death of a primary wage-earner or or long-term uninsured illness), these waiting periods may be reduced. It will depend on the lender you work with, and how good your story is!
There is life after a short sale. There is life after Bankruptcy. There is even life after foreclosure. Anyone can fall on tough times. With the proper planning, you can become a homeowner again before you know it.