Today it’s no longer necessary to wait 7 years after you file for bankruptcy to get a mortgage, even a VA loan. You can get one as soon as 2 years after a Chapter 7 bankruptcy and 12 months after a Chapter 13 bankruptcy.
Now just because these waiting periods are in place doesn’t mean that’s exactly when you can get a VA loan. It depends on how well you qualify for the loan based on your qualifying factors.
Reestablish Your Credit
The first thing you need to focus on after you file for bankruptcy is to reestablish your credit. Chances are that your credit score took quite a hit when you filed for bankruptcy. Every consumer’s credit score is affected differently, so you’ll have to see how yours fared.
After your bankruptcy is discharged, you can start rebuilding your credit. If you filed a Chapter 7 bankruptcy, you’ll be starting from scratch. Typically, all of your debts are discharged in a Chapter 7 BK. This means that you have little to no credit lines left. Now you have to build them back up in order to get your credit score to increase.
Start by applying for a secured credit card. This is a credit card that offers a credit line equal to your security deposit. If you don’t pay your bill on time, your credit card company will use the security deposit to pay the bill. The idea is to pay the bill on time, though.
Once you have the secured credit card for around 12 months, you can start applying for other types of credit, such as unsecured credit cards and installment loans. This will help your credit score increase even faster, especially if you use the credit card regularly, paying the bill in full as often as possible.
VA loans don’t’ have a specific credit score that you need to qualify, but lenders typically want a 620 credit score at a minimum. This is much lower than the minimum 680 credit score that conventional lenders require, which makes it a little less stressful on you as you work to get your credit score high enough for a VA loan.
Keep Your Debt Ratio Down
The VA doesn’t put a lot of emphasis on your debt ratio, but you should still pay attention to it. This means that you should keep your debts to a minimum. Technically, you can have a 43% debt ratio for a VA loan, but just coming off bankruptcy, you may want to have a much lower debt ratio in order to ensure that you qualify for the VA loan after bankruptcy.
The idea is to show lenders that you aren’t in financial trouble or at risk of getting in financial trouble again. The fewer debts you have, the better your chances of approval.
Stabilize Your Employment
Lenders will put a lot of emphasis on your credit score, but they will also look at your other qualifying factors to determine if you qualify for the loan. One main part is your employment. Lenders like to see a 2-year history of employment at the same job. This doesn’t mean that you can’t change jobs within the last 2 years, but it does give lenders some reassurance of your stability if you were at the same job for at least 2 years.
If you did change jobs, let the lender know why you changed jobs. If it was to better your income or employment opportunities, you can let the lender know this. You can even provide proof of your ability to succeed at the job, such as proof of previous training and/or schooling – anything that lets the lender know that you are able to handle the job and succeed at it.
Save Money for Closing Costs
Luckily, for VA loans, you don’t need a down payment. This can make it easier to buy a home since the only money you need to save is for the closing costs. VA loan closing costs are often lower than the closing costs on any other loan, so it’s easier to get the loan that you need.
Just because VA loan closing costs are lower, you still have some costs to pay. You should estimate closing costs of around 3% of your loan amount to be on the safe side. If you can’t cover the closing costs, you may be able to get assistance from the seller or even receive gift money from a relative or employer.
Get the Approval of Your Trustee for a Chapter 13 BK
The Chapter 13 BK is the exception to the rule. If you filed Chapter 13, you only have to wait 12 months to get a VA loan. Here’s the difference, though. You need the approval of the trustee in order to take on another loan. Your trustee is the person in charge of paying your bankruptcy debt. You write a check to the trustee and he or she handles the payments to your creditors. This person can tell you whether or not you can take on another loan. If you’ve repaired your credit score, kept your debt ratio down, and you have the money saved, though, your chances of taking on a new loan may be high.
Qualifying for a VA loan after bankruptcy isn’t impossible, but it does take some time. At a minimum, you’ll need to wait 2 years for a Chapter 7 bankruptcy. This gives you ample time to get your finances in order, increase your credit score, and impress potential mortgage lenders.