• USDA loan qualifying currently requires that a Chapter 7 bankruptcy be discharged for 3 years
• However, USDA guidelines also allow for the following possible exception:
qualify for a USDA loan after a Chapter 7 bankruptcy“An elapsed period of less than 2 years may be acceptable for a loan guarantee if the applicant can show the bankruptcy was caused by extenuating circumstances beyond their control and has since exhibited a documented ability to manage their financial affairs in a responsible manner for a reasonable period of time following discharge.”
• USDA loan qualifying after a Chapter 7 bankruptcy also will require the following:
“The lender must document the applicant’s current situation indicates the events that led to the bankruptcy are not likely to recur.
• Possible exception scenarios would evidence that the circumstances leading to the
credit problems were:
a. Temporary in nature
b. Beyond the applicant’s control; and
c. Resolved for 12 months prior to application
• These examples could include, but are not limited to:
o Temporary loss of job
o Delay or reduction in benefits
o Illness, or
o Dispute over payment for defective good
• Also acceptable for review, would be in cases when the new loan will significantly reduce the applicant’s housing expense and improve repayment ability by 50% of more
As you can see, it can be possible to qualify for a USDA loan after a Chapter 7 bankruptcy, but be prepared to document your case and the circumstances.
Qualifying for a USDA home loan can be both difficult and overwhelming, but when you work with a lender that specializes and understands the USDA loan process, it is a match that can open the door to homeownership.
USDA Blueprint for Success
If you are looking to purchase a home within the next 6 months download your free USDA Blueprint for Success! This is a great educational resource for both buyers and Realtors.
For more immediate scenarios, click here to get pre-qualified for a USDA mortgage today!
So, keep us in mind for your next pre-qualification or if you have a current transaction experiencing financing difficulty and need an expert opinion.
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