It all began with a bright outlook on life. Jason had a great job, a fast car, lovely furniture, and what seemed like the start to a happy future. Then the unexpected happen, and Jason’s happy life got filled with medical bills and sleepless nights.
The “unexpected” seems to happen to even the best of us. As a result nearly 730,000 cases of chapter 7 bankruptcies were filed in 2013. That is why it is so important to be educated about bankruptcy, and to know your options after going through one. I’m not a lawyer so I won’t attempt to give you legal advice, but I can share some helpful knowledge about how to get a home loan after going through this kind of stressful situation. Being from a company of US Veterans that primarily serves veterans, I’ll discuss bankruptcies and how they work with the VA home loan.
The requirements for getting a home loan vary depending on who is looking at your loan application. The VA has specific guidelines that they expect applicants to meet. In the case of a bankruptcy, the VA requires borrowers to wait one year. In order to qualify with the VA after only one year, the bankruptcy needs to have occurred primarily due to medical expenses, and the situation needs to have been beyond the borrower’s control. For example, the borrower can’t have a gambling related bankruptcy and feel entitled to a VA loan after only one year.
Even if a borrower does meet all the criteria of the VA, that still doesn’t guarantee them the right to a loan after a bankruptcy. The VA does not actually lend any money, they simply offer some security to a bank by guaranteeing a portion of the loan amount, making the lender feel more comfortable about lending a veteran money for a home.
Banks and Lenders
Banks and lenders have what are called overlays. These are guidelines that go above and beyond what the VA requires from the borrower. Most banks will not consider a borrower for a mortgage until two years after the discharge of the bankruptcy.
In order to get a VA home loan, you need to meet all the minimum requirements of both the VA and of the lender you are using. If you use a mortgage broker, they can help you select the lender with the overlays that work best for your situation.
It is important to not only look to the past, but to the future. If you have recently gone through a bankruptcy you should be thinking ahead and begin building new credit. Keeping an eye on your credit report and score is a very good habit to have. With bankruptcy, most if not all your creditors should no longer have claim to your money. Unfortunately, sometimes it takes a long time to get creditors to stop reporting collections. You may need to actively address the discharged collections to clean up your credit report and ultimately improve your score. In some cases you may even need to seek out advice from an attorney.
You should also consider opening a secured credit card to begin a history of responsible credit usage. Please understand that for lenders, bankruptcy can be viewed as your one “get out of jail free card.” It is very important that you do not get any new 30 day late payments or non sufficient funds notices.
Please remember that what happened to Jason can happen to anyone. If you find yourself in a similar situation, don’t feel ashamed, just move forward and begin planning for the future by preparing today.