Road funding

In 2020, I lost my job and went bankrupt. But now I’m on the right track and I would like to buy a house. Is it even possible to get a mortgage? – Royal Examiner

Yes, it is possible to get a mortgage after bankruptcy.

For a conventional mortgage, it all depends on the type of bankruptcy. For Chapter 7 bankruptcy (you sold your assets to pay off as much of your debt as possible), you usually have to wait four years, but your situation may qualify as a mitigating circumstance.

For Chapter 13 bankruptcy (you have completed your debt repayment plan), you usually have to wait two years from the discharge date. This period is shorter for FHA, VA and USDA loans.

You’ll also need a minimum credit score of 620 for a conventional loan, so keep your balances low on credit accounts and always pay on time. For FHA loans, a credit score of 580 is allowed, and your score could be as low as 500 if you have a 10% down payment.

You will need a cash deposit. With FHA loans, that could be as low as 3.5%.

Another type of loan can benefit people coming out of bankruptcy if they have cash on hand. The non-qualifying (non-QM) mortgage is suitable for people in special circumstances, usually self-employed people who don’t have a pay slip but have lots of money and a high credit score. It can also benefit those with money and a high credit score, but recent bankruptcy.

In 2022, here are the characteristics of the non-QM standard loan:
* The average credit score was 771
* Average down payment 24%
* The average debt-to-income ratio (DTI) was 37%

You generally need a DTI of 43% or less to finance a home. A good DTI is around 35% or less. You calculate DTI very simply: monthly debt payments divided by gross income. Add up all the payments you make in a month, including student loans and child support, but don’t include utilities, groceries, and gas.