For most prospective VA borrowers, experiencing a bankruptcy doesn’t mean you’re automatically out of the running for another VA-backed mortgage down the road. Although the VA loan process will be a little more difficult, it is absolutely possible to obtain a VA loan after bankruptcy.
Bankruptcy filings in federal court have dropped nearly 35 percent in the past five years. But consumers still reeling from the economic collapse continue to seek shelter using either a Chapter 7 or Chapter 13 protection. These tools can help veterans in financial distress get their overall fiscal health back on track. But they do come with some negative consequences, which generally include a sizable hit to your credit score.
With a Chapter 7 bankruptcy, VA-approved lenders will typically wait until you’re at least two years beyond the date of discharge. Some veterans who file for Chapter 13 bankruptcy protection may be eligible for a VA loan just 12 months removed from their filing date. In either case, satisfactory credit and no late payments during that time will be critical factors.
The time frame is important to remember with a Chapter 7 bankruptcy — the clock starts with the discharge, not with the initial bankruptcy filing. With a Chapter 13 filing, you would also need to obtain permission from the bankruptcy trustee to take on those new monthly payments.
Bankruptcy Followed By Foreclosure
Depending on your particular financial situation, existing homeowners may essentially give back their home during the bankruptcy process. Others may lose theirs to foreclosure months or even years after the fact.
Since foreclosure typically requires prospective VA borrowers to wait at least two years before obtaining a home loan, a common concern is that veterans will have to wait four years or more to move forward. That’s not necessarily the case.
These situations are always viewed on a case-by-case basis. We devoted an entire article to talking about potential outcomes when foreclosure follows a bankruptcy filing. You can check out that post here.
Boosting Your Credit
One of the biggest obstacles to getting a VA loan after bankruptcy is a consumer’s credit score. Spending those two years after the discharge working on credit repair is critical, as is making on-time payments.
If you need some direction about financial challenges, check out the Lighthouse Program at Veterans United. They work with veterans and active military at no cost to create a plan to overcome hurdles and get on the path to loan prequalification.
Get started online today, and see how Veterans United can help you move closer to prequalifying for a home loan.
Photo courtesy Jennifer C.