If you're a Veteran who has recently filed for bankruptcy, you may be wondering if you can still use your benefits to get a VA home loan. It is possible to get a VA loan after bankruptcy, but it can impact your eligibility.
Most lenders require you to wait for a specified period of time after bankruptcy before you can qualify for a VA loan. This is known as a VA bankruptcy waiting period. While it does delay your eligibility, it is often a much shorter time frame than the required bankruptcy waiting period for a conventional loan. The length of time you must wait varies depending on several factors. One of the most important is whether you've claimed Chapter 13 or Chapter 7 bankruptcy.
Chapter 13 bankruptcy is known as a “reorganization bankruptcy." It creates a court-supervised plan for repaying your outstanding debts. Chapter 7 bankruptcy, also called a “liquidation bankruptcy,” requires you to sell certain assets to repay your creditors.
Here’s a closer look at how each of these options impact your VA loan bankruptcy waiting period.
A Chapter 13 bankruptcy typically only requires you to wait 12 months from the date you filed for bankruptcy protection.
The 12-month period begins on your filing date, not your discharge date. This means that it's possible to qualify for a VA loan while still making payments on your bankruptcy, as long as you have made your payments on time for at least one year. In comparison, conventional loans often require you to wait a minimum of two years after your discharge.
Before you can be approved for a VA loan, your bankruptcy trustee may need to provide consent for you to take on a new mortgage debt. It's also important to note that while VA lenders usually follow these general guidelines, each lender may set its own standards for approving VA loans after a bankruptcy.
In most cases, VA lenders will require you to wait two years after a Chapter 7 bankruptcy is discharged before you can qualify for a VA loan. In contrast, conventional loans typically require a bankruptcy waiting period of four years after discharge.
However, you may be eligible for a VA loan one year after Chapter 7 bankruptcy if:
1. You have established credit history after the bankruptcy
2. You can show that the bankruptcy was caused by circumstances beyond your control
Again, while these guidelines are generally followed, each lender can set its own standards for loan approval following a bankruptcy.
In the aftermath of a bankruptcy, homeowners sometimes find themselves facing foreclosure. Often, this occurs months or years after the initial bankruptcy filing. While you may think a foreclosure automatically excludes you from VA loan eligibility, this is not the case. It is possible to get a VA loan after a foreclosure. However, much like with a bankruptcy, there’s typically a two-year waiting period.
Lenders generally look at the date a borrower stops being legally responsible for the debt. If your foreclosure is part of the bankruptcy discharge, then it shouldn’t kick off a new waiting period. However, each lender handles disclosures in their own way, and these decisions are often made on a case-by-case basis.
If the foreclosed property was purchased using a VA loan, you may also have reduced entitlement, which lowers the amount you can borrow. This may require you to secure an updated copy of your Certificate of Eligibility to determine the amount of entitlement you have left.
Even if you have a bankruptcy on your record, you can still qualify for a VA loan. Depending on the type of bankruptcy, you’ll need to meet the minimum waiting period, ranging from 12 months to two years.
After the waiting period, you should be able to qualify as long as you meet the minimum credit requirements, starting with a credit score of at least 620 or higher. Since bankruptcy can cause your score to drop anywhere from 130 to 240 points, you may need to take some steps to strengthen your credit before you can qualify.
You'll also need to meet the general eligibility requirements for a VA loan. This includes the VA's service requirements and the lender's requirements regarding your income, debt, and employment history.
When you're ready to apply for a VA loan, remember that each lender may present you with different options. Compare offers from the top lenders in the United States to begin your homebuying journey.