Can Filing Bankruptcy Hurt Your Chances of Getting a Mortgage Later?

Marybeth Schroeder
19 hours ago
5 min read

Filing for bankruptcy can feel like hitting the reset button on your finances, especially if you’re overwhelmed by credit card debt, medical bills, job loss, or other unexpected hardships. For many people, bankruptcy offers a path toward stability and a fresh start.

But one big question often comes up after the paperwork is filed: Will bankruptcy ruin my chances of buying a home later?

The short answer is: bankruptcy can make getting a mortgage more difficult in the short term, but it doesn’t eliminate your ability to qualify in the future. With time, the right financial habits, and proper planning, homeownership may still be within reach.

Let’s break down how bankruptcy affects your mortgage options and what you can do to rebuild your eligibility.

How Bankruptcy Impacts Your Mortgage Eligibility

Bankruptcy affects your ability to qualify for a mortgage in a few key ways:

1. It Can Lower Your Credit Score

A bankruptcy filing generally causes a major drop in your credit score, especially if your score was high before filing. Since mortgage lenders heavily rely on credit scores to determine loan risk, this drop can impact:

Whether you qualify at all
What interest rate you’ll receive
How much down payment may be required

Even though your credit score may gradually improve after bankruptcy, lenders will view the filing as a sign that you had significant financial stress in the past.

2. It Stays on Your Credit Report for Years

Bankruptcy doesn’t disappear quickly. Depending on the type filed, it may stay on your credit report for a long time:

Chapter 7 typically stays on your report for up to 10 years
Chapter 13 typically stays on your report for up to 7 years

That doesn’t mean lenders will deny you for that entire time. Many borrowers qualify for mortgages much sooner, but bankruptcy will still be visible during the early years.

3. Lenders May See You as a Higher Risk Borrower

Mortgage lenders want reassurance that you can make payments consistently for 15 to 30 years. If you’ve filed bankruptcy, lenders may worry about:

Whether your debt problems are likely to return
Your ability to manage finances long-term
How stable your employment and income are

This “higher risk” label can lead to stricter approval standards or less favorable loan terms.

How Long After Bankruptcy Can You Get a Mortgage?

The good news is that bankruptcy doesn’t permanently stop you from getting a mortgage. In fact, many loan programs allow you to qualify after a certain waiting period, provided you meet additional requirements.

Here are common timelines lenders may follow:

Conventional Loans (Fannie Mae / Freddie Mac)

Conventional loans usually have some of the strictest guidelines after bankruptcy. Many borrowers may need to wait:

Around 4 years after Chapter 7
Around 2 years after Chapter 13 discharge (sometimes longer depending on circumstances)

FHA Loans

FHA loans are often more flexible for borrowers rebuilding credit. Many applicants may qualify after:

About 2 years after Chapter 7
1 year into a Chapter 13 repayment plan (with court approval in some cases)

VA Loans (for Eligible Veterans and Service Members)

VA loans can offer easier qualification and no down payment requirement for eligible borrowers. Waiting periods can be:

About 2 years after Chapter 7
As little as 12 months into a Chapter 13 plan (with approval)

USDA Loans

USDA loans (for rural and some suburban areas) often follow similar rules to FHA:

Typically around 3 years after Chapter 7
12 months into Chapter 13 may be possible

Important note: Every lender is different. Even if you meet program guidelines, the lender may have “overlay” rules that are stricter than minimum requirements.

Can Bankruptcy Affect Your Mortgage Interest Rate?

Yes, bankruptcy can lead to a higher mortgage interest rate, especially if your credit score hasn’t had time to recover.

A mortgage lender’s interest rate decision often depends on factors like:

Your current credit score
Your debt-to-income (DTI) ratio
How much money you’re putting down
Employment history and income stability
Payment history after bankruptcy

The stronger your financial recovery looks, the more likely you are to get a better rate.

Steps to Improve Your Chances of Getting a Mortgage After Bankruptcy

Bankruptcy is a setback, but it can also be a turning point. If your goal is to buy a home later, rebuilding strategically matters.

Here are the most effective steps:

1. Rebuild Your Credit the Right Way

After bankruptcy, your credit profile may be thin. To improve it:

Consider a secured credit card
Keep your credit utilization low (ideally under 30%)
Make every payment on time
Avoid applying for too many new accounts at once

The goal is to prove you can handle credit responsibly after the filing.

2. Build a Consistent Payment History

Mortgage lenders want stability. Even if you have a low score at first, consistent payments can show lenders you’ve changed your financial habits.

Pay on time for:

Credit cards
Car loans
Student loans
Any personal installment accounts

On-time payments can be one of the strongest indicators of long-term financial recovery.

3. Save for a Down Payment and Closing Costs

Having more money saved can improve your chances of approval because it reduces the lender’s risk.

Even if you qualify for a low down payment loan, extra savings can help with:

Home inspection costs
Closing fees
Emergency repairs after move-in
Proving financial stability

4. Keep Your Debt-to-Income Ratio Low

After bankruptcy, one common mistake is taking on too much new debt too quickly.

Try to keep your monthly debt payments manageable compared to your income. Lower DTI improves:

Mortgage approval odds
Loan terms
Your ability to comfortably afford the home

5. Be Prepared to Explain Your Bankruptcy

Some lenders may ask what caused your bankruptcy. Being able to explain it clearly and show that the issue was resolved can help your case.

Examples lenders may view as more understandable include:

Medical bills
Temporary job loss
Divorce or family hardship
A one-time financial crisis

If you’ve rebuilt responsibly, bankruptcy can be seen as a past event, not a permanent label.

Does Bankruptcy Automatically Mean You’ll Be Denied?

Not necessarily.

Many borrowers qualify for mortgages after bankruptcy, especially if they demonstrate:

Reliable income
Responsible money habits after filing
Stronger credit trends over time
Savings and stable employment

In some situations, bankruptcy may even improve your chances long-term if it helped eliminate unmanageable debt and gave you room to rebuild.

Final Thoughts: Bankruptcy Can Slow Your Mortgage Plans But It Doesn’t End Them

Filing bankruptcy can impact your ability to buy a home, especially in the first few years. You may face waiting periods, higher interest rates, or stricter approval requirements.

However, bankruptcy does not mean your dream of homeownership is over. With steady rebuilding and smart planning, getting a mortgage later is absolutely possible.

Ready to Take Control of Your Financial Future?

If you’re considering bankruptcy or you’ve already filed and want guidance on what comes next, having the right legal support can make all the difference.

The Law Office of MaryBeth Schroeder can help you understand your options and take confident steps toward financial stability.