The Credit ABC’s: Recovering from Major Credit Damage

Buying a Home after Major Credit Damage

Have you experienced a bankruptcy, foreclosure, judgment, or other major negative credit event? It may seem like all hope is lost to restore your credit and buy a home, but that’s not true! You can absolutely recover from major credit damage, and qualify to buy a home. The key is rebuilding your credit as soon as possible after the event. You can do so by paying close attention to all your accounts to ensure they’re paid on time. Also, keep the balances low, and track your accounts to ensure no further erroneous derogatory information is reported. Then, after the required waiting period for your event, you will be eligible to apply for a home loan. See below for current residential lending requirements after major credit damage.

Residential Lending requirements after Major Credit Damage

  1. Bankruptcy: If you are seeking a conventional or government loan, and filed for chapter 7, 11, or 13 bankruptcies, a 2-4 year waiting period is required from the discharge or dismissal date. The waiting period depends on the bankruptcy type and loan program type you seek.
  2. Foreclosure: Foreclosures require a 7 year waiting period to purchase with a conventional loan, or a 3 year waiting period on a FHA loan. VA loans do not require a waiting period if credit reestablished.
  3. Judgments: A judgment, or other public records listed on a credit report (such as a tax lien, or collections) doesn’t require a formal waiting period before you can apply for a home loan. They do, however, considerably damage your credit scores. Pay and close the accounts as soon as possible, and then begin rebuilding your credit with accounts in good standing in order to bring your scores up.

*Note: We are not attempting to cover all negative credit events. These are examples of some of the negative credit events a consumer can experience, along with the applicable required waiting periods for residential lending.