Waiting Periods After Foreclosure, Bankruptcy, and Short Sale
Navigating the homebuying process after experiencing a foreclosure, bankruptcy, or short sale can feel overwhelming, but it’s not impossible. Different loan programs have varying waiting periods, and understanding these can help you plan your next steps to get back into homeownership. In this post, we’ll break down the waiting periods for FHA, Conventional, VA, and Non-QM mortgages after experiencing financial hardships like foreclosure, Chapter 7 or Chapter 13 bankruptcy, and short sales.
FHA Loans
Foreclosure: FHA loans generally require a waiting period of 3 years after a foreclosure. The waiting period starts from the date the foreclosure was finalized and transferred out of your name.
Chapter 7 Bankruptcy: After a Chapter 7 bankruptcy discharge, you’ll need to wait 2 years before applying for an FHA loan. It’s essential to show that you’ve re-established credit and have no additional derogatory marks during this period.
Chapter 13 Bankruptcy: For Chapter 13 bankruptcy, you can apply for an FHA loan after 1 year of making on-time payments under the bankruptcy plan, with the approval of the bankruptcy court. If the bankruptcy has been discharged, the waiting period is typically 2 years.
Short Sale: FHA loans have a 3-year waiting period after a short sale. However, if you were current on your mortgage and other obligations at the time of the short sale, this waiting period may be waived.
Conventional Loans
Foreclosure: Conventional loans require a longer waiting period of 7 years after a foreclosure. In some cases, if there were extenuating circumstances, this waiting period may be reduced to 3 years.
Chapter 7 Bankruptcy: After a Chapter 7 bankruptcy, the waiting period for a conventional loan is 4 years. This period allows time to rebuild your credit and demonstrate financial stability.
Chapter 13 Bankruptcy: If your Chapter 13 bankruptcy was discharged, you’ll need to wait 2 years before applying for a conventional loan. If it was dismissed, the waiting period is 4 years.
Short Sale: For a short sale, the waiting period for a conventional loan is 4 years. If there were extenuating circumstances, this may be shortened to 2 years.
VA Loans
Foreclosure: VA loans are more flexible, requiring a waiting period of 2 years after a foreclosure. This makes VA loans a great option for eligible veterans who have faced financial challenges.
Chapter 7 Bankruptcy: After a Chapter 7 bankruptcy, the waiting period for a VA loan is 2 years. As with FHA loans, you must show that you’ve re-established credit during this time.
Chapter 13 Bankruptcy: You can qualify for a VA loan 1 year into a Chapter 13 bankruptcy repayment plan, provided you have made on-time payments and have court approval. If the bankruptcy is discharged, there is typically a 1-year waiting period.
Short Sale: VA loans generally require a 2-year waiting period after a short sale. If you were current on your mortgage at the time of the short sale, this waiting period may be waived.
Non-QM Loans
Foreclosure: Non-QM (Non-Qualified Mortgage) loans offer the most flexibility when it comes to waiting periods. Depending on the lender, the waiting period after a foreclosure could be as short as 1 year, allowing you to get back into homeownership sooner.
Chapter 7 Bankruptcy: For Chapter 7 bankruptcy, Non-QM loans may only require a 1-year waiting period after discharge, depending on the lender and your overall financial situation.
Chapter 13 Bankruptcy: Non-QM loans often allow you to qualify immediately after a Chapter 13 discharge, or even while you are still in the repayment plan, depending on the lender's criteria.
Short Sale: The waiting period for a Non-QM loan after a short sale can be as short as 1 year. Non-QM lenders are more flexible, focusing on your ability to repay rather than rigid waiting periods.
Which Loan Is Right for You?
The right mortgage option after a financial hardship will depend on your unique circumstances, your eligibility for certain programs, and your financial goals.
FHA Loan: Best for those looking for more lenient credit requirements and manageable waiting periods after foreclosure or bankruptcy.
Conventional Loan: Suitable if you have had time to rebuild your credit and can meet the longer waiting periods required.
VA Loan: Ideal for eligible veterans who need a shorter waiting period and more flexible credit standards.
Non-QM Loan: A great option if you need the shortest possible waiting period and have non-traditional income or credit circumstances.
Let Seabright Mortgage Guide You Back to Homeownership
If you’ve experienced a financial setback but are ready to get back on the path to homeownership, Seabright Mortgage is here to help. Our team of experienced mortgage consultants can help you understand your options and guide you through the process of qualifying for a new home loan.
Contact Us Today to learn more about your options and take the first step toward your new beginning.
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Seabright Mortgage is a DBA of ML Mortgage Corp. ML Mortgage Corp. is a state-licensed mortgage lender, NMLS ID #362312, licensed by the CA Department of Financial Protection and Innovation under the Finance Lenders Law, License #60DBO69831. For other states, visit www.mlmortgage.net. To verify licenses, visit www.nmlsconsumeraccess.org. All loans are subject to credit approval and acceptable collateral. Additional terms and conditions apply. Programs, rates, terms, and conditions may change without notice. Not all programs are available in all states. There is no guarantee that all borrowers will qualify. Restrictions may apply. This is not a commitment to lend. © 2024 ML Mortgage Corp. All rights reserved.