How To Get A VA 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 conventional loan). Active and retired military services members may still qualify for VA loans, 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

When bankruptcy occurs, potential home buyers are subject to a waiting period in order to qualify for a VA loan and the “waiting period” varies by type of bankruptcy filed. Most likely, individuals will need to wait 2 years before applying for a VA loan after bankruptcy.

The biggest difference between a Chapter 7 and Chapter 13 filing, is what happens to your assets/property when you file, and how long you must wait afterward to apply for a mortgage loan. Those who want to file for Chapter 7 must also meet certain income eligibility criteria.

Chapter 7 Bankruptcy

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

• You won’t be allowed to keep property (such as cars, real estate)
• You won’t be allowed the option to catch up on payments in order to keep certain assets
• Bankruptcy information will stay on your credit report for up to 10 years 

For those wanting to obtain a VA loan after bankruptcy, they must meet the following criteria:

• Minimum of 2 years since debt discharge
• No late payments since bankruptcy or new accounts in collections since discharge
• A minimum credit score of 580 – 640 

Chapter 13 Bankruptcy

Chapter 13 is known as “reorganization bankruptcy” because it allows individuals to work out a repayment plan in order to keep their property. A bankruptcy attorney will work with the court on a debt repayment plan. Once the debt repayment plan is complete, any remaining debt will be discharged, typically after a 3 – 5-year repayment plan, in most cases.

For those who do not meet Chapter 7 eligibility requirements and are able to pay some of their debt, Chapter 13 is a better option. You’re able to retain your property and the bankruptcy falls off your credit report in 7 years.

Those seeking a VA loan after Chapter 13 are also eligible sooner; Rocket Mortgage^® requires the bankruptcy be discharged or dismissed prior to application.

Here are the qualifications those applying for a VA loan after filing Chapter 13 must meet: 

• You may be asked for additional payment history details around any late payments that occur within 12 months of your application.
• Minimum 580 – 640 credit score depending on your situation

Foreclosure

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

A bankruptcy followed by a foreclosure (most common in a Chapter 7 filing) doesn’t disqualify borrowers from applying for a VA loan. There is a little bit more paperwork 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.

Those who foreclosed on a home paid for by a VA loan previously, may not be able to use their full VA entitlement again, and so a discussion with the lender is always advised during the mortgage application process, if you have any bankruptcy filings in your financial history.

A waiting period after bankruptcy is to your benefit as 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. There’s good news: the financial best practices for building/raising a credit score are the same whether bankruptcy is in a borrower’s background or not.

• Making on-time payments for all debts
• Working to lower any outstanding debt obligations and lower your debt-to-income ratio as much as possible
• Keep credit utilization rate as low as possible; below 30% if you can
• Checking your credit report for errors
• Keeping requests for new lines of credit at a minimum

For those contemplating a VA loan after bankruptcy, there are three things to remember.

• You can still apply and qualify for a VA loan (yes, really!)
• Eligibility requirements vary by location, lender, and the type of bankruptcy you filed
• After bankruptcy you will have to wait a minimum amount of time before applying for new debt like a mortgage, (minimum of 2 years for Chapter 7, and a minimum of 12 months in some cases for Chapter 13.)

For those who are ready to apply for a VA loan after bankruptcy, the next step is to get approved with Rocket Mortgage^Ⓡ today.