Can I qualify for a mortgage after bankruptcy?

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Bad things happen - unemployment, divorce, prolonged illness, or death of a spouse. In your financial life, these bad things can result in more bills than you can pay. In extreme situations you may find it necessary to use the bankruptcy laws to reorganize your finances.

While folks file bankruptcy for many different reasons, the common thread is that they were unable to repay their debts according to the agreements with their creditors. This makes prospective creditors more cautious of extending new credit.

In mortgage lending, this caution manifests itself in waiting periods between the bankruptcy and approval for a new mortgage. The length of the waiting period depends on the mortgage program and the your specific circumstances, but in addition to the elapsed time, lenders generally are looking for two things. First, they expect you to reestablish good credit. This can be difficult after a bankruptcy, but check out our article, "You can recover from credit disasters" for suggestions. Second, lenders want to make sure that the situation that led to the bankruptcy is not likely to recur.

All mortgage programs have provisions for extenuating circumstances that can shorten the required waiting period. As this is an exception to the standard loan guidelines, your lender will ask for your help to carefully document that the circumstances were beyond your control. Note that divorce generally is not viewed as a circumstance beyond your control.

So, let's look at the required waiting period for each mortgage program. Note that the waiting periods in the case of a foreclosure or short sale may be longer than for a bankruptcy. If you also lost your home during the bankruptcy, those longer waiting periods may apply (except for Fannie Mae conventional loans).

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