Let’s face it, we’ve all made mistakes. Perhaps you have had a foreclosure, short sale or bankruptcy in your past. Is it ever possible to get a mortgage and purchase a home again? You bet! The best way to rehabilitate your credit record is to take control of your finances, pay your bills on time and let time pass. How much time depends on which loan program you are considering. Below we have outlined the different loan programs and the amount of time to wait before you can apply for a mortgage.

FHA loan program

Foreclosure – If your home was foreclosed or you completed a deed in lieu, and have given back your home to the bank you will have to wait 3 years before applying for your next mortgage. There are some exceptions for extenuating circumstances, which may allow you to apply following a shorter waiting period. Ask your loan officer whether the situation surrounding your foreclosure or deed in lieu may qualify.

Short Sale - In the case of a short sale, when your home is sold but the sales price does not cover the amount you owed on your mortgage, you will have to wait 3 years before applying for you next mortgage. However, if you had no late payments on any mortgages and consumer debts (like credit cards) within the 12 months before your short sale you may not have to wait 3 years. There are other exceptions based on extenuating circumstances that you can discuss with your loan officer. They will be able to help you determine whether your special situation may allow you to get a new mortgage earlier.

Bankruptcy - Chapter 7 – If your debts were discharged through bankruptcy and you did not have to pay any of the debts you owed, you will have to wait 2 years from the date of the discharge to apply for a new mortgage. You may be able to apply after less time has passed if you have qualifying extenuating circumstances and you have shown the ability to manage your financial affairs responsibly since your bankruptcy. You will need to discuss your extenuating circumstances with your loan officer to see if you are a candidate to apply for a mortgage in less than 2 years.

Bankruptcy – Chapter 13 – If you declared bankruptcy and are paying on your debts on a monthly, court-ordered schedule you will have to wait 1 year before you can apply for another mortgage. You will also be asked to provide proof that you have been making your payments satisfactorily and have written permission from your bankruptcy trustee.

VA loan program

Foreclosure – If your home was foreclosed and given back to the bank; or you completed a deed in lieu, returning your home to the lender in exchange for cancelling your loan, you will generally have to wait 2 years before applying for a mortgage. If there are extenuating circumstances, the waiting period may be lessened. Please talk to your loan officer to see if your special situation may qualify.

Short Sale – If you sold your home and the sale price did not cover the amount owed on your mortgage, you may have to wait 2 years before applying for another mortgage. However, if you had no late payments on any mortgages or consumer debts (i.e., credit cards) for the 12 month period prior to your short sale you may not have to wait to apply for a new mortgage.

Bankruptcy – Chapter 7 – If you declared bankruptcy and your debts were discharged, meaning you did not have to pay them, you’re likely to have to wait 2 years to apply for a mortgage unless your credit has been re-established and your payment record is good and your bankruptcy was caused by extenuating circumstances.

Bankruptcy – Chapter 13 – If you declared bankruptcy and are paying back your creditors on a court-ordered, monthly payment plan you will have to wait a 1 year period and have shown satisfactory payment performance. Your bankruptcy trustee will have to provide written permission for you to purchase a home.

USDA loan program

Foreclosure, Deed in Lieu, or Short Sale – If your home was foreclosed and given back to the bank; or you completed a deed in lieu, returning your home to the bank in exchange for loan cancellation; or you sold your home as a short sale, you will likely have to wait 3 years before applying for a mortgage. There may be exceptions where the waiting period is reduced in certain cases of extenuating circumstances. Ask your loan officer about your specific situation.

Bankruptcy – Chapter 7 – If you declared bankruptcy and your debts were discharged and you’re not paying on them, you will have to wait 3 years before applying for a mortgage in most cases. If you have extenuating circumstances your waiting period may be reduced. Please talk to your loan officer about your situation.

Bankruptcy – Chapter 13 – If you declared bankruptcy and are on a monthly plan to pay back your debts you will have to wait 1 year and have a satisfactory, on-time payment record in order to apply for a USDA mortgage. You will also have to get written permission from your bankruptcy trustee.

Conventional loan (Fannie Mae or Freddie Mac)

Getting a conventional mortgage following foreclosure, short sale, or bankruptcy is a bit more challenging.

Foreclosure – If your home was foreclosed, you will have to wait 7 years before applying for a mortgage, unless you experienced extenuating circumstances. In certain situations your waiting period could be reduced to 3 years based on your situation and if you can pay at least 10% down payment. These guidelines are only applicable to a primary residence.

Short Sale or Deed in Lieu – If you sold your home but the sales price didn’t cover the amount owed on your loan or you returned your home to the lender in exchange for cancelling the loan you will likely have to wait 7 years to get a new mortgage unless you have 10% or more to put down for a down payment. If you can do a 10-20% down payment you can apply after 4 years; or if you have 20% to put down you only have to wait two years.

Bankruptcy – Chapter 7 - If you declared bankruptcy and your debts were discharged through that bankruptcy, you will have to wait 4 years before applying for a new mortgage. However, if there are extenuating circumstances, you may be able to apply in as little as 2 years.

Bankruptcy – Chapter 13 – If you declared bankruptcy and you are paying on your debts on a monthly payment plan, you will have to wait 2 years from the bankruptcy discharge date or 4 years from the dismissal date.

QuickTip - What you can do: As you can see there are lots of intricacies when applying for a mortgage following financial foreclosure or bankruptcy. Make sure to discuss any credit issues and extenuating circumstances you have experienced as early in the loan process as possible so that your loan officer can work with you to find the right program and rehabilitate your credit. Also, keep good records and be ready to provide documentation and/or write letters explaining your situation when asked.