How to get a VA loan after bankruptcy

Filing bankruptcy gives you the opportunity to rebuild your finances from the ground up without having to deal with costly debt payments each month. However, it comes at a price: Your credit score will drop significantly, often making it harder to get a new mortgage when you’re ready to buy a home or refinance.

For qualifying veterans, active-duty service members and surviving military spouses who meet certain requirements, buying a home with a VA loan after bankruptcy can be a great option. This type of loan, which is administered by the U.S. Department of Veterans Affairs, allows you to finance up to 100% of the home’s purchase price. It can also enable you to lock in a lower interest rate than you may otherwise qualify for.

Can you get a VA home loan after bankruptcy?

It’s possible to buy a house after bankruptcy, and yes, VA loans are available after bankruptcy, too. In certain circumstances, VA loans may be easier to obtain than other loans (such as an FHA loan or a conventional loan). Active and retired military service members may still qualify for a VA mortgage, but eligibility will depend on a handful of factors:

• The type of bankruptcy you’ve filed
• The reason you’ve filed for bankruptcy
• Your ability to meet standard VA eligibility requirements

The best action you can take is to speak with your lender about your situation. They’ll help you understand what you need to qualify for a VA loan.

The VA loan bankruptcy waiting period, explained

After bankruptcy, most potential home buyers are subject to a “waiting period” before they can qualify for a VA loan. With a Chapter 13 bankruptcy, there is no waiting period, although you may need some time to rebuild your credit. With a Chapter 7 bankruptcy, you’ll need to wait up to 2 years before applying for a VA loan.

The biggest difference between a Chapter 7 and Chapter 13 filing is what happens to your assets and property when you file, and how long you must wait afterward to apply for a mortgage loan.

Chapter 7 bankruptcy

In Chapter 7 bankruptcy, individuals (or businesses) are allowed to sell their property to pay off their debts. Once the sale of assets is final, the remaining debts are discharged, allowing debtors (the individuals filing bankruptcy) to start over with a clean financial slate. Chapter 7 comes with several drawbacks, however, including:

• You won’t be allowed to keep property like your home, your car and even some household items.
• You won’t be allowed to catch up on missed payments to settle debts with lenders and creditors.

Chapter 13 bankruptcy

Chapter 13 is known as “reorganization bankruptcy” because it lets you work out a repayment plan to keep your property. A bankruptcy attorney will work with the court on a debt repayment plan typically lasting 3 – 5 years. Once the debt repayment plan is complete, any remaining debt will be discharged.

If you don’t meet Chapter 7 eligibility requirements and are able to pay some of your debt, Chapter 13 is often a better option. You’re able to retain your property, and the bankruptcy falls off your credit report in 7 years. That said, filing Chapter 13 bankruptcy has a few downsides worth noting. For example:

• You’ll find qualifying for new loans – including VA loan programs – much more difficult than if you hadn’t filed.
• You likely won’t be able to save money each month. That’s because you’ll have to use your income to pay for your necessities and any debt payments you’re required to make.
• You’ll have to make payments until your debts are paid in full.

Foreclosure

Foreclosure isn’t a type of bankruptcy, per se, but since homes are foreclosed upon due to non-payment, foreclosure can go hand-in-hand with filing bankruptcy.

A bankruptcy followed by a foreclosure (most common in a Chapter 7 filing) doesn’t disqualify borrowers from applying for a VA loan. A little bit more paperwork is involved, however, if a foreclosure was a part of any bankruptcy proceeding. Borrowers will need to document their personal circumstances in a letter of explanation.

If a borrower paid for a home with a VA loan and then went through foreclosure, they may not be able to use their full VA entitlement again. A discussion with the lender is always advised during the mortgage application process if you have any bankruptcy filings in your credit history.

Bankruptcy waiting periods for VA loans vs. other mortgages

The amount of time before you can apply for a mortgage after debt discharge depends on different types of loans. Let’s take a look at how the bankruptcy waiting period varies between VA loans and other mortgage options.

How to qualify for a VA loan after bankruptcy

It’s entirely possible to qualify for a VA loan after filing bankruptcy. However, the qualification requirements will be different than when you initially applied for your loan. The exact requirements will depend on the type of bankruptcy you filed.

Qualifying for financing after chapter 7 bankruptcy

It’s possible to qualify for a new VA home loan after filing Chapter 7 bankruptcy. If you’re wanting to apply for a VA loan after bankruptcy, you’ll need to meet the following requirements:

• You must wait a minimum of 2 years after debt discharge.
• Depending on your circumstances, you can’t have any late payments since bankruptcy or new accounts in collections since completing the bankruptcy discharge.
• To qualify for a VA loan with Rocket Mortgage^®, you’ll need a minimum credit score of 580 or 640 depending on whether you’re applying for a standard VA loan or a VA jumbo loan.

Qualifying for financing after chapter 13 bankruptcy

If you file Chapter 13 bankruptcy, you’ll be able to apply for and potentially qualify for a new VA loan sooner than you would with a Chapter 7 bankruptcy on your record. Here are the requirements you’ll need to meet:

• Your bankruptcy must be discharged or dismissed before you apply for a mortgage.
• You may need to provide additional information about any late payments that occur within 12 months of your application.
• You’ll need a minimum credit score of 580 or 640 depending on the type of VA loan (standard or jumbo) you’re applying for.

Keep in mind that the exact requirements to qualify for a mortgage after Chapter 7 or Chapter 13 bankruptcy will vary from lender to lender. Speak with your Home Loan Expert to better understand your options and what you need to be approved for financing.

How to increase your chance of approval during your VA bankruptcy waiting period

A waiting period after bankruptcy is to your benefit because this time can (and should) be utilized to rebuild credit. Bankruptcy or not, your credit score still impacts the amount of interest you’ll pay on a mortgage loan, so it’s wise to work on obtaining the healthiest score possible.

The financial best practices for improving a credit score are the same regardless of whether bankruptcy is in a borrower’s background. Here are a few steps you may want to take to rebuild your score:

• Make on-time payments on all debts.
• Work to lower any outstanding debt obligations and lower your debt-to-income ratio (DTI) as much as possible.
• Use only a small percentage (less than 30%) of the credit that’s available to you. Look into the term “credit utilization rate” for a helpful way to calculate this.
• Check your credit report for errors.
• Keep requests for new lines of credit, like credit cards, at a minimum.

The bottom line: A VA loan after bankruptcy is possible

It’s possible to be a homeowner after filing bankruptcy – and if you’re a qualifying active-duty service member or veteran, or you’re a surviving military spouse who meets certain eligibility criteria, applying for a VA loan may be the best way to get into a new home.

Although there’s a waiting period before you can apply for a new mortgage post-bankruptcy, many qualified borrowers will discover they can secure a VA home loan much more easily than another loan option.

If you’re ready to take the next step in your homeownership journey after filing bankruptcy, start your mortgage application with Rocket Mortgage.