VA loans have flexible guidelines even if you’ve filed bankruptcy. While most loan programs make you wait many years to get a loan, you can get a VA loan just two years after filing for a Chapter 7 BK or 12 months after a Chapter 13 bankruptcy.
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VA Loans After a Chapter 7 Bankruptcy
So you filed for Chapter 7 bankruptcy. That means you wrote off all or most of your debts. You start with a clean slate. Now you’ve decided you want to own a home. If you are a veteran, the VA loan may be able to help. The VA allows you to apply for a loan two years after the BK’s discharge date. Note that this is different from the date you filed. This is the date the court dismissed your debts.
What do you need to qualify? Here’s a short list:
- You must re-establish your credit with no late payments since the filing of the BK
- You must not have any new collections
- You must have improved your credit score (shoot for at least a 620)
- You must have a good explanation regarding the BK and proof that you’ve overcome it
As you can see, the VA doesn’t require a lot when applying for a VA loan after bankruptcy. In short, they want to know that you’ve recovered from whatever caused the issue. That’s why they want to see re-established credit, no new collections, and a decent credit score.
You don’t need great credit by any means, but you should build your credit back up. After you wipe the slate clean, you demolish your credit score. It may take some time to build it back up. Two years may or may not be enough time; it depends on how proactive you are in the process.
Start by applying for secured credit cards. Prove that you can use the cards responsibly and pay your debt off in full. Once you establish a good track record, move to unsecured credit cards and other personal loans. Keep a positive credit history and slowly but surely, your credit score will build.
VA Loans After Chapter 13 Bankruptcy
If you filed for Chapter 13 BK, you have a repayment plan. You didn’t wipe the slate clean. Instead, you are making good on your debts or on the settlements the creditors agreed to accept. Since this BK is different, it has different rules.
First, you must make at least 12 payments on your payment plan. These payments should be on time, of course. Since your account is overseen by a treasurer, you need to get his or her approval to take on new debt too. You can’t just apply for a mortgage and assume it’s a go. The treasurer must provide written approval of the new debt before the lender can approve you.
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A key difference between the Chapter 7 and Chapter 13 bankruptcy is the waiting period. Chapter 7 waiting periods don’t start until the discharge date of the BK. Chapter 13 BK’s countdown starts on the filing date – that’s a big difference.
Getting Approved
No matter what type of bankruptcy you filed, you must prove that you’ve overcome the issues. We discussed how to re-establish your credit above. You’ll also need to show strength in other financial areas of your life.
Lenders want to see that you have stable employment and increasing income. They’ll look over your income for the last two years. If you had any employment gaps or decreasing income, be ready to explain it. Do so in writing and provide proof of how you’ve fixed the issue.
Lenders also want to see a positive payment history. As you build your credit back up, do whatever it takes to avoid any late payments. If you show repeated patterns of late payments, lenders will worry that you’ll still be a high risk of bankruptcy or foreclosure and could deny your loan application.
You’ll need to provide lenders with a good Letter of Explanation. Make your reasons for the financial fallout the truth and believable. Show that you’ve overcome the issues and how you plan to prevent any such issues from occurring in the future.
Getting a VA loan after bankruptcy isn’t as hard as many other loan programs make it. Take the time to maximize your credit score and your other qualifying factors and you could find yourself with a mortgage just one to two years after bankruptcy.
