How to Get a VA Loan After Bankruptcy

By Bill Lyons | Updated on February 2, 2024

Buying a house after filing for bankruptcy can be difficult, but it’s still possible. Likewise, getting a VA loan after bankruptcy may be easier than other types of loans, but it’s still challenging. 

Your VA home loan eligibility after bankruptcy will typically depend on the type of bankruptcy, the reason for filing for bankruptcy, and whether or not you meet the VA’s minimum service and other eligibility requirements. 

So can you get a VA loan after filing for bankruptcy? Understanding bankruptcy and VA loans can be confusing. Ultimately, your eligibility depends on several factors, but securing financing after bankruptcy or foreclosure can make it more complicated due to your impacted credit score, financial situation, and factors like the bankruptcy waiting period. Keep reading to learn more about how to get a VA loan after bankruptcy. 

VA Bankruptcy Waiting Period

For most types of home loans, there is a waiting period after bankruptcy. For example, the VA bankruptcy waiting period is generally two years before you can apply for a VA loan. However, your specific waiting period will be determined by the type of bankruptcy you filed for — Chapter 7 or Chapter 13. 

VA Loans After Bankruptcy

When you file for bankruptcy, there are two types: Chapter 7 and Chapter 13. Each has its own VA bankruptcy waiting period timeframes and can impact your ability to secure a VA home loan after bankruptcy. 

VA Loans and Chapter 7 Bankruptcy

You might qualify for a VA home loan after filing a Chapter 7 bankruptcy. With this type of bankruptcy, you can sell property and assets to pay your debts. Also known as liquidation bankruptcy, this type means you can’t keep property like cars or real estate or can’t catch up on payments to keep some of your property. Additionally, Chapter 7 bankruptcy can stay on your credit report for up to 10 years, negatively impacting your credit score. 

If you file Chapter 7 Bankruptcy, you must wait at least two years from the discharge date before applying for a home loan. Additionally, lenders may have a minimum credit score requirement you must meet to be eligible. There are several VA loans available for individuals with bad credit, but requirements vary by lender. 

VA Loans and Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows individuals to use a repayment plan as decided by the court. Once you’ve completed the plan, the remaining debts are discharged. How long the repayment plan takes varies depending on the amount and type of debt. However, you can typically expect a repayment plan of at least three years. 

With this type of bankruptcy, you get to keep your property and assets, and this information only stays on your credit report for seven years. Additionally, Chapter 13 bankruptcy allows you to apply for a VA home loan after 12 months of making on-time payments. In addition, like Chapter 7 bankruptcy, you’ll have to meet your particular lender’s credit score requirements to qualify for the VA loan. 

Getting a VA Loan After Foreclosure

Foreclosure isn’t the same as bankruptcy. However, when you file for bankruptcy, it may be due to the fact that you can’t pay your mortgage premium and other debts. A foreclosure won’t disqualify you from taking out a VA loan or using your remaining entitlement. However, you’ll need to provide a letter of explanation to the lender to qualify. 

If you foreclose on a home financed with a VA loan, you won’t be able to use your full entitlement again, which means you may have to make a down payment to cover the remaining portion of the VA’s guarantee on the loan. 

Tips for Rebuilding After Bankruptcy

VA loans and bankruptcy can be complicated to understand. However, the waiting period is designed to help you, not hurt you. Before you can apply for a VA loan after bankruptcy, you must establish good credit and try to rebuild as much as possible to meet a lender’s requirements. During the 12- to 24-month waiting period, you should start to rebuild your credit, which can reduce your interest rates once you qualify for the VA loan again. Here are a few tips to help make you a more appealing borrower to lenders after you’ve filed for bankruptcy: 

Pay all bills on time

Paying all your bills from the moment you file bankruptcy onward is crucial for helping build your credit score. After filing for bankruptcy, many of your debts are discharged. However, you may still have some debts after filing for bankruptcy. Any debts can impact your credit score, so it’s crucial to find ways to pay those down. 

Additionally, you should keep up with all your bills, since everything from rent payments to medical bills can affect your credit score. Your credit history makes up 35% of your credit score, so it’s crucial to continue to make on-time payments to help build your credit back up. 

Paying your bills on time will also show future lenders that you’ve learned from your mistakes since filing for bankruptcy. 

Lower your debt-to-income ratio

Your debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes toward paying your monthly debt, including rent or mortgage, car payments, student loans, and so forth. DTI is one of the most significant factors lenders consider when deciding whether or not to approve your mortgage application. Typically, they like to see a maximum DTI of no more than 43%. However, the lower, the better. 

There are two ways you can lower your DTI: increasing your income or lowering your debts. Since bankruptcy discharges some or all of your debts, it automatically improves your DTI. However, since it significantly impacts your credit score, lowering your DTI even further during the waiting period is essential. 

Keep your credit utilization ratio low

Credit utilization ratio is another factor that determines your credit score and is a percentage of your total credit used from the credit you have available from credit cards and loans. Lenders use this percentage to determine how well you manage your debt. In general, it’s best to have a low credit utilization ratio because that means you’re not relying on credit cards to pay your bills. 

Prepare an explanation letter

If your goal is to purchase a home with a VA loan after bankruptcy, you may need to provide your lender with a letter of explanation to help them understand your current situation. Remember, lenders must determine their level of risk when loaning you money, and bankruptcy is a significant red flag. A letter of explanation can help you tell lenders more information about the bankruptcy and why you filed for it. It should include details about the type of bankruptcy and the circumstances that led to it, such as job loss.

Additionally, the letter should explain how you’ve changed your financial habits since filing for bankruptcy to help them understand why you deserve a VA loan. You can also explain the various steps you’ve taken to avoid bankruptcy in the future, such as paying off debt, lowering your DTI, and increasing your income. 

Keep your employment

Lenders want to know that you have a reliable source of income. Job hopping won’t affect your credit score, but it can impact how lenders view you as a borrower. For example, many lenders prefer you to be at your job for at least two years to qualify for a mortgage. If you’ve recently filed for bankruptcy and the waiting period is over, showing lenders you’ve held the same job for many years can increase your chances of VA home loan approval.

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Find Out If You Qualify for a VA Loan

If you filed for bankruptcy and are wondering if you qualify for a VA loan, there are a few things to consider, such as the type of bankruptcy and its specific waiting period. VA loan eligibility requirements vary by lender, and bankruptcy can hurt your credit score. However, while waiting for the VA loan bankruptcy waiting period to end, you can focus on rebuilding your credit and finding ways to show lenders that you’ve become a creditworthy borrower. 

Find out if you qualify for a VA loan by contacting Griffin Funding today. We specialize in VA loans for first-time home buyers and borrowers of all types, even those with bad credit and foreclosure or bankruptcy in their history. Talk to a mortgage specialist today to learn about your home loan options after filing for bankruptcy. We can help you determine your VA loan eligibility and provide guidance on increasing your chances of approval.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.