You filed for bankruptcy because things got tough. Now you want to know when you can buy a home with a VA mortgage again.
Luckily, unlike other loan programs, the VA doesn’t have a long waiting period for a mortgage after a bankruptcy. They typically allow borrowers to secure a mortgage just 2 years after the discharge of a Chapter 7 bankruptcy. If you filed for Chapter 13 bankruptcy, you may be able to get a VA loan as soon as 12 months after you filed for the BK.
What do Lenders Require?
Just waiting the required time after a bankruptcy to get a VA loan isn’t enough. You have to prove that you have overcome the circumstances that caused you to file for the BK. You must also prove that you have the qualifications for the VA loan, just as you would if you didn’t have the BK.
Luckily, the VA guidelines are simple. The VA doesn’t have a specific credit score you must have to get a VA loan. This is probably the most forgiving part of the program, especially for those that filed for bankruptcy. Many lenders require a 620 credit score, but you may find a lender or two that will allow a score that is even lower than that if you have compensating factors.
Because you are coming off a bankruptcy, this could be just what you need to get a mortgage. Typically, bankruptcies can knock more than 100 points off your credit score, which could leave you with a rather low score. This is why searching for a lender that doesn’t have minimum credit score requirements is important.
Compensating Factors Help
You should try to come up with as many compensating factors for the lender as you can. They want to know that you aren’t a high risk of default. You can prove that you are a good risk with:
- Assets on hand – If you have savings, stocks, bonds, or mutual funds, let the lender know. They will base your assets on the number of mortgage payments they will cover. For example, if your mortgage payment is $1,500 and you have $3,000 in liquid assets, you have 2 months of reserves. Obviously, the more reserves you have, the better your chances of approval become.
- Low debt ratio – Since you are coming off a BK, it’s a good idea not to have too many debts going at once. Lenders want to know that you’ve learned your lesson and are not getting in over your head. While the VA allows a total debt ratio up to 41%, it’s a good idea to keep your debt ratio much lower than that for the best possible outcome.
- Stable employment – If you have had the same job for many years, it works to your advantage. Lenders like the consistency and reliability that comes with having the same job for many years. If you do change jobs, try to keep it within the same industry and within the same income range for the best outcome with a lender.
Letter of Explanation
It’s quite common for lenders to ask for a Letter of Explanation regarding the bankruptcy. They want to know what led up to the BK and what you’ve done differently to make sure it doesn’t happen again. Of course, if it was something outside of your control, such as your company closing or an illness, you don’t have a lot to explain. Just state the facts and supply the proof to back up your claims.
If you messed up and made poor financial decisions, just be honest with the lender. Then show them the steps you’ve taken to pick up the pieces. In this case, it would help if your credit score increased since you filed for bankruptcy too. This shows the lender proof that you are doing what it takes to move forward and make smart financial decisions.
Dealing With a Chapter 13 BK
If you filed for Chapter 13 bankruptcy, you have a few more steps to take. Unlike the Chapter 7, where everything was written off, you are probably still paying your debts back. The Chapter 13 bankruptcy is a restructuring of your debts. In order to secure a VA loan approval, you’ll need the approval of the trustee that is overseeing your bankruptcy. The trustee will decide if the VA loan is something, you can afford and/or if it’s a smart decision for you.
So when can you get a VA mortgage after bankruptcy? Technically, you have to wait between 12 months and 2 years depending on the type of bankruptcy you filed. But, it also depends on the lender and how well you have bounced back from the situation.