USDA Loan After Bankruptcy

Real Estate Agent with RE/Max One | Sellers Agent

USDA Rural Development Loan After Bankruptcy


USDA Loan After Chapter 13 Bankruptcy

1 Year assuming you are making all your payments on time. A Chapter 13 BK is where the individual must pay back all or a portion of the debt in a structured arrangement as ordered by the court system.

USDA Loan After a Chapter 7 Bankruptcy

2 Years if there were circumstances out of your control such as the loss of a primary income earner or hospital bills due to illness or death of a family member. Some scenarios fall outside of normal circumstances are left to the discretion of the mortgage and USDA underwriters.

3 Years for a normal Chapter 7 Bankruptcy. In this case you have to simply wait it out.

What To Do After Bankruptcy

usda loan after bankruptcyWaiting does not mean sitting idle, there are lots of things to start getting in order when preparing to re-apply for a USDA Loan after Bankruptcy. The underwriters are not as lenient with guidelines after someone has gone through a Bankruptcy. These tips apply to getting prepared to obtain all types of mortgages however the credit score requirements might be different for a different type of mortgage loan.

#1 Most Common Mistake After a Bankruptcy - Getting the wrong type of credit. The Most potent form of credit is a bank credit card. Whether it be a personal loan, line of credit from a mail order catalog, or a store credit card, its not as potent as a bank credit card. Sure it might help but its all about getting your score up in the shortest amount of time. Bank credit cards are the absolute fastest way to re-establish credit in almost all cases. Often a $200 secure credit card can have more effect on your credit report than a $2,500 monthly mortgage!

#2 Most Common Mistake After a Bankruptcy -  Not getting enough credit. You need three trade lines with a 12 month history. If we need three trade lines to show your credit history and you only have one or two, you can not get the loan. The USDA Guidelines are very strict when it comes to this especially after a Bankruptcy. There are times when we can use alternative credit like rent, utilities or a cell phone but its much better to use items reported on your credit report.

#3 Most Common Mistake After Bankruptcy - Getting advice from the wrong people. Its frustrating when I hear that their credit union, cousin, mother-in-law told them to do this or that and now they have to wait a year or more because of bad advice.

Typical Scenario For Re-establishing Credit

Underwriters want to see three accounts with a 12 month history of no late payments prior to getting approved.

  • As soon as your BK is discharged get 3 secure credit cards and use them. Pay them off monthly and do not go over 30% of the limit when using them. Call the credit card company every 6 months and ask them to raise your limit which will help your score immensely.
  • Monitor your score through a credit bureau monthly and sign up to pull your reports as often as you with without a penalty. This service is usually around $30 per month and well worth it.
  • Once your credit is worthy open one or two small lines of credit through a credit union, bank or second chance lender for a 2 year period. Take the money and put it in a separate checking account and add the missing interest that will be paid throughout the loan. Set the checking account up to auto-pay the loan back every month and dont touch the money.

This is typically a best case scenario to boosting up your credit after a bankruptcy. Of course speaking to a mortgage professional is also recommended to ensure you are not missing something. If you want to talk to a USDA Loan expert about your credit or want to learn how to get a USDA Loan after bankruptcy dont hesitate to call me 443-624-9398.


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Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Brian, this is great advice for people who want to get their financial life in order and buy a home. Much success to you in 2012 !

Dec 27, 2011 09:04 AM #1
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

Thanks for posting this straight forward information for those that do not know.  It is amazing to me what people believe to be true when they first meet with me.


Dec 27, 2011 09:30 AM #2
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Brian & Val Mayer

Listing Specialist | Realtor in Calvert County MD
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