Waiting Periods Following Bankruptcy, Part II

The waiting periods following bankruptcy to apply for a mortgage loan from either FHA, USDA/RD, or VA, are somewhat different than those for conventional loans sold to or insured by FNMA.  Yesterday's blog post addressed the waiting periods imposed by FNMA.  An outline of the waiting periods for FHA, USDA/RD and VA loan applications after bankruptcy will show that these programs are a bit more in line with one another than FNMA.  As with all waiting periods, they may be extended by individual lenders or investors, but they cannot be shortened.

FHA imposes a minimum two year waiting period following a Chapter 7 bankruptcy, which commences on the date of the debtor's discharge.  The guidelines do not address a Chapter 7 proceeding that might be dismissed, although logic would seem to dictate that the dismissal of a Chapter 7 proceeding would result in a non-bankruptcy situation.  The debtor's credit record however, would no doubt be in shambles.  In addition to the waiting period, the debtor will be required to submit a complete explanation for the bankruptcy, have established a good credit history following the bankruptcy, and must meet all other FHA underwriting guidelines.

For a Chapter 13 proceeding, FHA will allow a debtor to apply for a mortgage loan while still in a Chapter 13 proceeding if: (1) the debtors has been in the proceeding for at least a year; (2) the debtor has made all payments due under the Chapter 13 plan within the prior 12 months and payments are verified; (3) the debtor obtains the bankruptcy trustee's approval for the mortgage loan; (4) the debtor submits a detailed written explanation of the reason for the bankruptcy proceeding; and (5) the debtor has good credit and a satisfactory employment history.  If a debtor has gone through a Chapter 13 proceeding and has completed the payment plan and received a discharge, that debtor under FHA guidelines, must wait two years before submitting an application, in addition to complying with the other requirements listed above.  That to me seems a bit odd.  Why treat someone who has completed a Chapter 13 Plan more harshly than someone who is under a Chapter 13 Plan but has not yet completed the Plan?

Under the USDA/RD guidelines, a debtor who has been discharged from a Chapter 7 proceeding must wait three years after discharge before applying for a mortgage with the USDA.  A debtor who is discharged from a Chapter 13 proceeding must only wait twelve months after discharge to be eligible to apply for a mortgage loan as long as all payments in the Chapter 13 plan were made on time.  The USDA does not address the situation of someone who is still in a Chapter 13 plan like the FHA does.

The VA guidelines require a waiting period of two years for a debtor who is discharged from a Chapter 7 proceeding.  Similar to FHA guidelines, the debtor must also submit a full explanation for the bankruptcy, must have re-established good credit, have good job stability, and must otherwise qualify financially under standard VA guidelines.  For a debtor in a Chapter 13 proceeding, the VA will consider a debtor who is still paying on the Chapter 13 plan if payments are made on time and verified for at least 12 months.  The bankruptcy trustee's approval must be obtained, the debtor must have good credit, job stability, and otherwise qualify financially under standard VA guidelines.

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