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Can You Qualify for a USDA Loan after Bankruptcy?

June 21st, 2013 by Sean Stephens

Qualifying for a USDA Loan after Bankruptcy:

Often times, bankruptcies are not brought on because of a neglect of financial responsibilities but instead, are due to traumatic third party events that may have been out of that person’s control. A USDA loan after bankruptcy may be able to help depending on the situation and the factors involved. This short video explains the details…

USDA credit qualifying requirements state that a Chapter 7 bankruptcy must be discharged for at least 3 years or more. However, exceptions are available to the 3 year period and underwriting will need to determine if the cause of the bankruptcy was temporary in nature and what hardship was the reason for the situation.

Examples of hardships include:

  • Death of a spouse
  • Job transfer or relocation
  • Medical hardship for borrower or family

Aside from that, credit scores will contribute greatly towards loan approval. Higher scores give more flexibility with automated approvals and underwriter discretion. While lower scores can be cause for denial or require additional documentation for review. Please remember that minimum credit conditions do apply and all loans are reviewed on a case by case scenario with no specific score determining an approval.

Compensating factors to help with qualifying for a USDA Loan after bankruptcy are:

  • Low debt ratios
  • Stable Job Time (Usually considered 2+ years on the same job)
  • Liquid Reserves (checking, savings, 401k, etc.)
  • Verifiable rental history with no late payments

When qualifying for a USDA loan after bankruptcy, further information may be needed including letters of explanation, medical bills, court paperwork, employer documentation, etc.  Additional consideration can also be given to what type of bankruptcy; was it a chapter 7 or 13?

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