Buying a home after bankruptcy or foreclosure

How long do I have to wait to get a mortgage after bankruptcy or foreclosure?

It depends on the event and the loan program. These are the standard waiting periods in Fannie Mae's guide (conventional loans) and HUD's FHA handbook for manually underwritten loans:

These are program minimums. Some lenders add their own, longer waits, and the loan still has to meet the usual credit, income and property rules. Because Tom compares many lenders, he can look for one whose rules fit your timeline.

When does the waiting period start?

For conventional loans, Fannie Mae measures from the date the event was completed, discharged or dismissed to the date the new loan funds. For FHA, a Chapter 7 wait runs from the discharge date, and a foreclosure, deed-in-lieu or short sale wait runs from the date title transferred out of your name.

Pull your discharge papers or the deed date before you start house hunting. If your credit report doesn't show the date clearly, the lender will ask for the court or closing documents anyway, so having them ready saves time.

What counts as extenuating circumstances?

Fannie Mae defines them as nonrecurring events beyond your control that caused a sudden, significant and prolonged drop in income or a catastrophic increase in what you owed, such as a serious illness, a death in the family or a job loss. The lender has to document the event, for example with medical bills, a layoff notice or insurance papers, and show how it led to the problem.

FHA's handbook gives the serious illness or death of a wage earner as examples. It says a divorce on its own isn't an extenuating circumstance for a foreclosure, with one exception: the mortgage was current when you divorced, your former spouse kept the home and it was foreclosed later. Moving for a job and being unable to sell doesn't count.

Can I buy a home while I'm still in Chapter 13?

With FHA, it's possible. HUD's handbook allows it once at least 12 months of the plan's payments have been made, every payment in the last 12 months was on time, and the bankruptcy court gives written permission for the new mortgage. Talk to your bankruptcy attorney or trustee about the court's process early, since that permission can take time.

For a conventional loan, Fannie Mae counts the wait from the discharge date (two years) or the dismissal date (four years), so buying during the plan generally points to FHA.

How do I rebuild my credit before I apply?

Lenders want to see that you've rebuilt a normal credit history since the event. Fannie Mae requires traditional credit, meaning real accounts on your report, and FHA looks for re-established good credit or a choice not to take on new debt. In practice:

• Keep one or two accounts open and pay them on time every month.
• Check your credit reports for free and dispute anything wrong, such as a debt that was discharged but still shows a balance.
• Save for closing costs and reserves, and keep your other debts low.

The credit guide covers free reports, disputes and how long marks stay on your report.

What about VA and USDA loans?

VA and USDA loans have their own waiting periods and credit rules, and some of them are shorter than conventional ones. They also depend on the details of your bankruptcy or foreclosure, so Tom checks the current rules for your situation rather than quoting a single number. If you've served, the VA loan guide covers eligibility.