You filed for bankruptcy so you think your chances of getting a VA loan are gone. Luckily, that’s a myth. Even if you filed for BK, you can still get a mortgage in the future. In fact, the VA has some of the most relaxed guidelines when it comes to how long you have to wait after filing for bankruptcy.
The type of bankruptcy you filed for will determine how long you have to wait. If you filed a Chapter 7 bankruptcy, you must wait two years from the discharge date to get a VA loan. If you filed a Chapter 13 bankruptcy, you only have to wait 12 months.
Just because the VA has short waiting periods before you can get a VA loan doesn’t mean that you’ll qualify. You must be able to prove that you qualify for the loan.
Did Your Credit Improve?
Your credit score probably took quite a hit after you filed for bankruptcy. Even though the VA doesn’t have a minimum credit score requirement you must meet, your lender likely will. You should do what you can to improve your credit score as quickly as you can.
As you wait the two years (or 12 months) for a new VA loan, use the time to work on your credit. You’ll probably have to start slow. Many people apply for a secured credit card a few months after their bankruptcy discharge. The secured credit card gives you a credit line equal to your deposit. If you default, the credit card company keeps your deposit. If you keep a secured credit card in good standing for at least six months to a year it can help your credit score improve.
After you have the secured credit card for a while, you may want to apply for an unsecured credit card or personal loan. You need more positive trade lines to report on your credit report. This shows lenders that you have turned over a new leaf and that you can be financially responsible or that you’ve overcome the issue that caused the BK in the first place.
Do You Have Stable Employment?
If the reason you filed for BK is because you lost your job, you’ll need to show job stability again. Even if you didn’t lose your job, you’ll need to show that you are consistent and reliable. Lenders like to see a 2-year job history to prove your consistency. Given the fact that you have a BK in your recent past, it’s best if you can keep the long employment history.
If you do change jobs, try to get another job within the same industry. If you change industries entirely, make sure you have proof of your ability to succeed in the industry. A few common examples include going back to school or taking specific training for the new job. You just need to prove to the lender that you have what it takes to make this job work.
Did You File for Chapter 13 Bankruptcy?
If you filed for Chapter 13 bankruptcy, you have the added responsibility of securing your trustee’s approval. When you file Chapter 13, you have an official appointed to your account that restructures your debts and pays them for you. All that you have to do is make one payment to the trustee each month.
As a part of the program, though, the trustee must approve any new debts that you take on – you can’t just take them and assume you can pay it. The trustee will have to provide his/her approval for your VA loan should the lender decide that you are a good candidate.
Do You Have Compensating Factors?
It’s also a good idea to provide the lender with some compensating factors. The fact that you filed for BK is a big negative. You want to try to offset that negative with some positive information, such as:
- Money in reserves – Do you have money in a savings, checking, or liquid investment account? You can use this money to your advantage as it shows lenders your financial responsibility.
- Low debt ratio – Since most of your debts were likely wiped away, you should have a somewhat low debt ratio. This will show lenders that you aren’t overextended and are not a high risk of default.
- Stable employment – We discussed this above, but it can be a compensating factor too. The longer you’ve been at your job, the more stability you show a lender which can offset your risk of default.
Obtaining a VA loan after bankruptcy isn’t the hardest thing to do, but it may take some work. You have to do what you can to show lenders that you are no longer a risk of default. Just waiting the two years from the discharge date isn’t enough – you have to prove that you have gone above and beyond to repair your financial life and make it stable again.