When it comes to getting qualified for a home mortgage loan, a bankruptcy can play a significant role in your ability to get approved. There are many factors that a bankruptcy has on the loan process. Knowing what to expect can help you improve your chances for a mortgage approval.

The Waiting Period

If a person has filed bankruptcy, it will be more difficult to get approved for a loan. Many mortgage loan programs will require a waiting period from the time the bankruptcy has been discharged before the mortgage can be approved. Depending on what type of bankruptcy that you filed will depend on how long the waiting period will be. If you filed a chapter 7 bankruptcy, then you will have to wait at least two years from the discharge date before the home loan can be approved. The two year waiting period is based on a FHA home loan. A conventional home loan will require a four year waiting period.

If you have filed a chapter 13 bankruptcy, the waiting period is still the same on a conventional home loan, but on a FHA loan, there is a way to finance a home while still in chapter 13 bankruptcy. FHA mortgage programs will consider the filing date when calculating the waiting period. A chapter 13 bankruptcy client can qualify for a loan after one year from filing the bankruptcy. Since many clients are still in chapter 13 bankruptcy after one year, you must get approval from the trustee of your case, that you can add a new debt like a home loan. Without the trustee approval, you will not get approved for the loan.

All mortgage approvals with customers still in chapter 13 bankruptcy require manual underwriting and must follow the FHA loan guidelines.

Reestablish Credit History

For many people that file bankruptcy, the toughest step in getting a mortgage loan approved is that many mortgage companies require that the customer has reestablished a good credit history since the bankruptcy. The reestablish credit history must also show no new negative accounts since the bankruptcy. For example, if you have a bankruptcy that was discharged in 2009 and in 2010, your car was repossessed, then you will not get approved for a mortgage loan.

Reestablishing credit history usually consists of at least a car loan and a revolving credit account. Make sure to keep your revolving account balance below 10% of the actual credit limit. Home loans require the reestablishment of credit for approval.

There are other home loan programs besides FHA mortgage loans and conventional home loans that have different guidelines when considering a bankruptcy. These types of loans are considered non-traditional loans and many of these programs require a larger down payment. Home loan rates on these programs are also usually 2 to 3 percent higher than a normal conventional mortgage.

Avoid New Derogatory Credit

The most important thing to remember after a bankruptcy is to reestablish credit and do not have any new negative accounts since the bankruptcy was filed. You want to show the lender that the bankruptcy was an once in a lifetime event and will not happen again. If the mortgage company believes that there is a habit of bad credit or the likelihood of filing bankruptcy again, the mortgage will be declined.

Bankruptcy is not a mortgage loan killer, but if you have filed bankruptcy in the last seven years, it is important to make sure that you are doing everything possible to have good credit, especially if you want to purchase and finance a new property.

David White is a Sr. Home Loan Consultant who helps his customers with their Home Loans. David specializes in FHA Home Loans which helps customers who have filed bankruptcy in the past. David has over 12 years experience in the finance industry.