Best Mortgage Lenders That Work With Chapter 7, According to Experts

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These lenders are among the best to consider if you’ve previously declared Chapter 7 bankruptcy.

Getting a mortgage or personal loan when you’ve recently declared bankruptcy can be challenging, but it’s far from impossible. Despite the uphill battle, several lenders that work with Chapter 7 bankruptcy exist. You generally must allow the waiting period to pass, and then you may be able to qualify for a mortgage.

Lenders in this category have experience dealing with bankruptcies, so they can help you navigate the process. I worked with experts to uncover the best bankruptcy lenders. Now, we’ll look at those lenders and what sets them apart.

Quick Winners List

• Best for a Variety of Options: New American Funding
• Best for Short Waiting Periods: First National Bank of America
• Best for Online Mortgages: Rocket Mortgage (formerly Quicken Loans)
• Best for Low Credit: Alpine Mortgage Services
• Best for Non-QM: Peoples Bank Mortgage

Best for a Variety of Options: New American Funding

Pros

• Many loan and refinance options available
• Branch locations in several states
• Option to buy with all cash
• Competitive rates
• Interest-only loans available

Cons

• Lowest rates require purchasing points
• Conventional loan requires 40% down for the lowest rates
• Fees not disclosed on the lender’s website

New American Funding (NAF) offers non-QM services to customers who recently filed for bankruptcy. It uses a one-year tax return, 12-month bank statement and asset qualifier programs to verify income, creating a complete financial picture rather than relying solely on a credit score.

NAF’s non-QM loans have several benefits, such as fixed and adjustable-rate loan options. Loan amounts of up to $2.5 million are available with a cash-out option of up to $500,000. In addition to your primary residence, you can also use these loans for a secondary residence or investment property.

Best for Short Waiting Periods: First National Bank of America

Pros

• Own a home in as little as 30 days
• Allows the use of gift funds
• Accepts multiple income verification methods
• Only requires a 600 credit score

Cons

• May require a 20% down payment
• Only three branch locations

First National Bank of America (FNBA) offers alternative mortgage loans suitable for those who don’t fit the typical homeowner mold. Its non-qualified mortgages are intended for those without traditional income streams or who have experienced bankruptcy or foreclosure. FNBA has a one-month waiting period after bankruptcy. You could close on a new home mortgage in around 30 days.

FNBA’s program for borrowers with recent credit events is bank statement loans, which require 20% down and a credit score of 600 or higher. However, these are lower hurdles than you may find with some competitors. The lender also permits gift funds, allowing you to ask for help with your down payment. It also allows a debt ratio of up to 55%, whereas many lenders won’t accept a ratio higher than around 40%.

Best for Online Mortgages: Rocket Mortgage (formerly Quicken Loans)

Pros

• Several loan programs available
• Rate reduction programs can lower your interest rate
• Save up to $10,000 when buying through Rocket Homes
• Down payment assistance programs in select markets

Cons

• Requires a two-year waiting period
• Rates are not the lowest available

Rocket Mortgage (formerly known as Quicken Loans) does not service non-QM loans that might allow for an immediate loan after negative financial events. However, it is one of the largest home loan providers. Rocket Mortgage has several conventional and government-backed home loan options if you are beyond the two-year waiting period.

Rocket Mortgage offers FHA or VA loans just two years after bankruptcy. After four years, you can apply for most loan types. It has many loan programs, including ONE+, which helps you get a conventional loan with as little as 1% down. Rocket Mortgage also has resources to help with credit repair, and its all-online mortgage process makes it easy to complete a mortgage application.

Best for Low Credit: Alpine Mortgage Services

Pros

• Some programs require a credit score of only 500
• FHA and VA loans available
• Interest-only loan option
• Competitive rates

Cons

• Only available in select states
• Best rates require a 25% down payment

Alpine Mortgage Services is a New Jersey-based lender providing mortgages to various customers. In addition to loans for imperfect credit, its programs include fixed-rate and adjustable-rate mortgages, FHA and VA loans, and first-time buyer loans. Its bad-credit loans require a minimum credit score of just 500 and have no waiting period after a Chapter 7 or Chapter 13 Bankruptcy.

The lender offers flexible payment options, including credit card installments and late payments. Alpine’s non-QM mortgage requires only a 500 credit score, though the minimum down payment is 20%. You can cut that in half with its FHA Low Score program, which still requires a 500 credit score but only requires a 10% down payment. The biggest downside for this lender is that it only operates in eight states: CA, CT, FL, GA, NJ, NY, PA and TX.

Best for Non-QM: Peoples Bank Mortgage

Pros

• Offers mortgages as soon as one day after completing a bankruptcy plan
• Mortgages available in all 50 states
• Specific focus on mortgages after bankruptcy
• Simple process to get a mortgage with a Chapter 7 bankruptcy

Cons

• Doesn’t publish rate information
• Only two branches

Peoples Bank Mortgage is a lender offering many mortgages, including those for Chapter 7, Chapter 11 and Chapter 13 bankruptcy. Customers may qualify for conventional mortgages and FHA, USDA and VA home loans. However, the lender particularly emphasizes helping borrowers who recently declared Chapter 7 or Chapter 11 bankruptcy or are currently in Chapter 13 bankruptcy. This makes it our top choice for non-QM loans, as it is intimately familiar with customers who don’t fit the traditional financial profile.

Peoples Bank Mortgage doesn’t provide many specifics on its website; for example, it doesn’t mention its rates, fees or minimum credit score for approval. However, it does show 620 at the low end of its credit score spectrum and recommends keeping your score above this threshold. Its website provides a number and consultation form to connect you with a loan officer. It operates in all 50 states, so geography won’t prevent the lender from approving you.

How to Get a Mortgage After Bankruptcy

If you've gone through bankruptcy recently, you may wonder whether you can still get a mortgage. The answer is yes, but it may be more challenging than it would be for someone with a clean credit history. The key is to find a mortgage company specializing in providing home mortgages to individuals who have gone through bankruptcy.

Step 1: Understand the Different Types of Bankruptcies

The key to getting a mortgage after bankruptcy is understanding the different bankruptcy filing types and how they impact your eligibility for various loan programs.

People can file two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is known as a straightforward bankruptcy and involves liquidating most of one's assets to pay off debts. Chapter 13 involves restructuring one's debts into a repayment plan. Both types of bankruptcy stay on one's credit report for seven to 10 years.

Obtaining a Mortgage After a Chapter 7 Bankruptcy

If you have filed for Chapter 7 bankruptcy, you will have to wait at least two years after discharge to qualify for a conventional mortgage. However, if you're willing to go with a government-backed loan, such as an FHA or U.S. Department of Agriculture (USDA) loan, you may be able to qualify for a home mortgage after just one year. Remember that these types of loans may require a higher down payment and interest rate.

"A lot of how lenders treat your Chapter 7 bankruptcy depends on the recency of the filing and discharge of your case,” says Derek Jacques, an attorney at Mitten Law with experience in Chapter 7 bankruptcy cases. Jacques says your chances of approval will be much greater if your bankruptcy was discharged three years ago versus six months ago, for example.

Obtaining a Mortgage After a Chapter 13 Bankruptcy

If you have filed for Chapter 13 bankruptcy, you may be able to qualify for a mortgage sooner, as long as you have completed at least one year of payments on your repayment plan and have received permission from the bankruptcy court to take on new debt. Additionally, you must have a good credit history since filing for bankruptcy.

Step 2: Focus on Improving Your Credit Score

Start by reviewing your credit report in detail to understand your credit score, history and outstanding debts. You can obtain a free credit report once per year from the three primary credit bureaus: Experian, TransUnion and Equifax. Check your credit report carefully for any errors or inaccuracies and dispute them immediately.

From there, you'll need to focus on making on-time payments on all existing credit accounts. You may also want to explore options for rebuilding credit. This can include opening a secured credit card or obtaining a credit-builder loan. These credit options are designed for people with poor credit who want to rebuild their credit. Keep in mind that credit-builder loans can be pricey.

Jacques recommends paying off all debts and making new payments on time. He says this communicates to lenders that you are responsible enough to be considered for a mortgage loan.

Remember, your credit score influences how likely you are to receive a mortgage approval and plays a critical role in determining the mortgage rate you will receive. Maintaining a stronger credit score can help you obtain a lower mortgage rate.

Step 3: Consider the Type of Mortgage Loan

Two main options are available to homebuyers with bankruptcies – a non-qualified home loan and a standard home loan.

Non-Qualified Mortgage Loan

Non-qualified home loans are types of mortgages that allow borrowers who cannot qualify for a traditional mortgage to purchase a home. These loans are often granted to borrowers with credit scores that don’t meet the usual requirements, irregular income or lack of documentation to verify their income.

Keep in mind that although non-qualified home loans provide an opportunity for people unable to obtain traditional mortgages, they also carry higher interest rates. It's important to understand what you are getting into before committing to repayments.

Standard Mortgage Loan

If you decide to pursue a standard loan, you will likely be subject to a waiting period, which can provide ample opportunity to focus on repairing your credit and determine your ideal loan type. Below, you will find the standard waiting period for each type of loan as well as the type of bankruptcy that each waiting period applies to.

• Conventional: four years for Chapter 7; two years for Chapter 13
• FHA: two years for Chapter 7; one year for Chapter 13
• VA Loan: two years for Chapter 7; one year for Chapter 13
• USDA: three years for Chapter 7; one year for Chapter 13

Step 4: Shop Around for a Mortgage Company

You'll need to find a lender that offers mortgages to homebuyers with bankruptcy on their record. Make sure to compare different lenders and their offers. A great place to start is with the mortgage companies outlined in this guide. 

Once you have identified potential lenders, gather all necessary documentation such as tax returns, pay stubs and bank statements. This will help demonstrate your ability to make mortgage payments and improve your approval chances.

How to Prepare for a Bank Statement Mortgage

As you prepare for a mortgage loan following bankruptcy, there are steps that you can take to improve your chances of finding an affordable home loan.

Prepare Your Documentation

Before applying for your mortgage loan, gather documents proving your assets. This may include bank statements, statements from retirement accounts and taxable brokerage accounts and documentation of business assets. The more assets you can prove you own, the more financing you can take advantage of.

“The best mortgage lenders for post-Chapter 7 borrowers will look at more than a credit score and consider the borrower's overall big financial picture, including employment stability and the size of the down payment,” says Leon Turkin, a mortgage broker at Turkin Mortgage. Turkin says that while some lenders are willing to lend to those who don’t fit the typical borrower profile, that can mean higher down payments and interest rates.

Save a Larger Down Payment

If you can afford to take some more time to save a larger down payment, you may be able to access lower rates.

Consult with a Loan Professional

If you aren’t sure which type of loan is right for you, consider consulting with a qualified and non-QM lender to explore your options. After speaking with both types of lenders, you can compare your options directly and choose the loan that fits your situation.

How Does Getting a Mortgage After Bankruptcy Work?

The process for getting a mortgage after bankruptcy varies by lender and the type of bankruptcy. However, you generally must wait one to four years after the bankruptcy is discharged to get a mortgage. Once the waiting period ends, you usually have a consultation with a loan officer about your situation.

After an initial consultation, the loan officer walks you through the application process. Often, borrowers applying with a Chapter 7 bankruptcy have imperfect credit, so the loan officer may also make recommendations such as improving your credit or they may verify your income or assets as part of the application. This can help strengthen your application if your credit score is low due to your bankruptcy declaration. Other steps may help, such as writing a letter explaining the situation and how you are working to get your finances on track.

Apart from these considerations, applying for a mortgage after bankruptcy is similar to any other application. Lenders offer various loan programs for Chapter 7, including conventional and non-QM loans, FHA, VA and USDA. You typically work with a loan officer and lender to get preapproved and submit your loan application, at which point, the loan is sent to underwriting. Once you provide all the relevant documentation and details, you can wait for approval and close on the loan.

Chapter 7 Mortgage Alternatives

Although many lenders offer Chapter 7 mortgages, they aren’t always the best option. Borrowers in this category often face high rates, particularly if they cannot make a sizable down payment. This can lead to difficulty gaining approval or difficult-to-manage monthly payments.

Consider the following options if you need an alternative to Chapter 7 bankruptcy loans:

• Cash-out refinance: If you are already a homeowner, you can cash out your existing mortgage, take out a larger one and use the difference to make a significant down payment.

• Debt management plan: Work on a plan with a credit counselor who can help you manage and reduce how much debt you have. This can help make your monthly payments easier to manage.

• Debt consolidation: Combining your debts into a single payment can make them more manageable. If your credit has improved, it can also reduce your interest rate and, in turn, your monthly payments.

• Government assistance: Various government programs are available to provide funds for down payments, lower your rate, or reduce monthly payments.

Why You Should Trust Us

Applying for a mortgage is often a daunting process, with many steps and endless pages of documents to sign. As a personal finance writer with over six years of experience, I’ve spent countless hours researching the best financial products available. During that time, I’ve become familiar with the ins and outs of each product. While none are perfect, the information presented here can help you become more knowledgeable as you search for the best product to meet your needs.

In addition, the experts I consulted are among the best qualified to answer your questions about the topic. One is a lawyer who helps people navigate Chapter 7 bankruptcy proceedings; the other is a mortgage broker who matches customers to the best mortgage. This provides professional opinions from different parts of the process, creating a well-rounded perspective.

The Bottom Line

Having a bankruptcy on record can make applying for a mortgage intimidating. Bankruptcies can result in higher rates and the need to make a larger down payment, but the lenders we discussed aren’t strangers to working with bankruptcy. As our top picks in this category, they can help you navigate the process with relative ease and secure the best rates possible in your situation.

Methodology: How We Found the Best Mortgage Lenders for Chapter 7

Finding the best lender isn’t easy, especially when you have a bankruptcy on record. But Benzinga is here to help. Over 25 million readers trust us for advice and news on stocks, investing, insurance and of course, mortgages.

We evaluated lenders using several key criteria to help find the best lenders for Chapter 7. The factors we used to determine the best lenders in this category are rates, fees, loan options, customer service, credit score and the application process. Check out our full methodology here. 

Frequently Asked Questions

Sources

1. About | Mitten Law
2. Our Team of Dedicated Mortgage Professionals | Turkin Mortgage