Filing for bankruptcy used to be the death sentence for any type of mortgage approval. Today, however, those times have changed and qualifying for a VA loan after bankruptcy is much easier than ever before. Going along with the theme that VA loans are easy to qualify for, the VA enables veterans to easily bounce back after a setback with their finances. That being said, they require just a 2-year waiting period after a Chapter 7 bankruptcy and a one-year waiting period after a Chapter 13 bankruptcy.
How the Waiting Periods Work
So how does the waiting period work and when does the clock start ticking? Let’s take a look.
A Chapter 7 Bankruptcy’s waiting period begins the day after the bankruptcy is discharged. This means the day after it goes to court and all of your liabilities are dismissed. Your 24-months begins on that date, which means you are eligible for a VA loan just 2 years after this point.
A Chapter 13 Bankruptcy’s waiting period starts 12 months after the filing date. This is a different date than the Chapter 7 bankruptcy and for good reason. The Chapter 13 bankruptcy does not dismiss your debts, but rather restructures them. During that 12-month period, you have to show the new lender that you made your payments to the trustee on time as well as have decent credit in order to qualify for a new VA loan.
Repairing your Credit
Although VA loans do not focus on a specific credit score, bankruptcies can often knock scores low enough that borrowers are no longer eligible for VA financing. The general threshold followed by most lenders is a credit score of 620. If your score is well below that, it is important to use the waiting period as a time to boost your credit back up.
The most important thing you can do during this time is make any remaining payments early or at the very least, on time. One late payment during your waiting period could still drastically reduce your credit score and lenders will be paying close attention to your payment habits during that waiting period time to ensure that you have restored your financial responsibility.
If you do not have any outstanding credit because everything was wiped away in your Chapter 7 bankruptcy, the waiting period is a good time to apply for any type of credit. Typically, borrowers turn to a secured credit card first since they are the easiest to obtain. With this secured card, you will receive a credit line that is equal to the amount of money you put down. This gives the lender a guarantee of payment should you not make your payments on time. A secured credit card gets reported to the credit bureaus, so it could give you the head start on repairing your credit score.
Getting Approved for the VA Loan after Bankruptcy
There is no magical number or timeframe that you should wait after a bankruptcy. If you want to be a homeowner and you have the qualifications to obtain a VA loan after bankruptcy, you should start applying with lenders. The VA has their general guidelines about getting approved, but every lender has their own overlays as well. In addition, if there are investors involved, there could be further requirements on the loan process.
It is best to apply for several lenders when you are applying for a VA loan after the discharge of your bankruptcy. Every lender will view your ability to overcome the financial difficulty differently. For example, one lender might require that you have a certain number of creditors with a positive credit history before they will approve you while another will simply abide by the seasoning requirements of the VA and approve you for the loan right after that period as long as your credit score is above 620.
The main things to focus on when applying for a VA loan after bankruptcy is the reestablishment of your credit history and the waiting period before you apply for a VA loan. The VA is still fairly flexible even for those borrowers that experienced a bankruptcy. Just make sure you have a plausible explanation for the bankruptcy and proof that you overcame those difficult times in order to get approved.