Surprisingly Short Waiting Periods for Mortgages After Bankruptcy

it's that homes are now at their lowest prices in years. It's a buyer's market-but people who have a recent bankruptcy, short sale, or foreclosure may feel that they can't get into the market until the bankruptcy is off their credit report.

Fortunately, that's not always the case. Whether it's a home loan through the government's FHA program, or through a lender working with Fannie Mae, people with a negative event on their credit report may still be able to get into the housing market while the getting is good.

FHA Insured Mortgages

Someone who has gone through Chapter 7 bankruptcy may be eligible for an FHA insured mortgage two years after the discharge of the bankruptcy, and possibly as soon as one year after, if he or she can demonstrate the bankruptcy was caused by "extenuating circumstances" (a dramatic, life-changing event such as an unexpected loss of a job or the death of a spouse), and the borrower can demonstrate the ability to manage finances responsibly.

Those in Chapter 13 debt repayment programs may apply for an FHA mortgage just one year after the pay-out period has begun, if their debt repayments have been on time and if they have written permission from the bankruptcy court.

Borrowers who recently had a short sale of their home are generally eligible for an FHA mortgage with no waiting period, provided in the 12 months before the short sale, they made all mortgage and installment debt payments within the month due. If the borrower was in default at the time of the short sale, the waiting period is three years, although the lender may make an exception, again for extenuating circumstances.

Fannie Mae Backed Mortgages

Lenders working with Fannie Mae have similar rules for their potential borrowers. For those who have gone through Chapter 7, there is a four year waiting period, which can be reduced to two years for extenuating circumstances. For Chapter 13, if the repayment has been properly discharged, the waiting period is two years. If the repayment has not been discharged but was merely dismissed, the waiting period is four years.

Fannie Mae mortgages may be obtained seven years after a foreclosure (or four years under extenuating circumstances). As you can see, the waiting periods are actually longer following a foreclosure than they are following a bankruptcy-just another demonstration that anyone facing foreclosure should consider bankruptcy as an alternative.