DSCR Loans After Bankruptcy
General Seasoning Requirements for DSCR Loans
DSCR loans after Bankruptcy typically require a mandatory seasoning period (waiting time) following the discharge or dismissal date of a bankruptcy. The exact period varies by the lender’s risk tolerance and program tier.
- Our Advantage DSCR and Prime DSCR: The general minimum seasoning required since a credit event (including foreclosure, short sale, or bankruptcy) for the DSCR program is 24 months (two years).
- Our Sharp DSCR: This program, designed for professional investors, requires a minimum seasoning of 3+ years (36 months) since the bankruptcy event.
- Our NQM Advantage (Advanced): Another tier specifies 36 months (three years) seasoning for bankruptcy, foreclosure, short sale, and deed-in-lieu events.
- Our Horizon DSCR No Ratio: This stricter program tier requires 3 years seasoning for bankruptcy, with Chapter 13 requiring discharge or dismissal 2+ years prior to closing.
- River DSCR: This program requires 3 years since the discharge or dismissal date of Chapter 7, 11, or 13 bankruptcy.
- Edge Investor Classic DSCR: This product requires 3 years of seasoning since the discharge or dismissal date of a single bankruptcy (Chapter 7, 11, or 13).
- Investor Edge Elite DSCR: This premium tier requires a 4-year seasoning requirement for a single bankruptcy.
Note: The seasoning period generally begins on the date of discharge or dismissal of the bankruptcy and ends on the note date of the new mortgage.
Specific Bankruptcy Type Requirements
The seasoning period is applied to all chapters of bankruptcy, but lenders emphasize specific timing related to the court action:
- Chapter 7, 11, and 13: Seasoning is generally measured from the discharge or dismissal date.
- Chapter 13 (Horizon): If discharged, the filing date is used for the lookback period, and the bankruptcy must be discharged for a minimum of 12 months. If dismissed, the dismissal date is used for the lookback period.
- Chapter 13 (Horizon No Ratio): Requires Chapter 13 to be discharged or dismissed 2+ years prior.
Restrictions and Ineligibility Related to Bankruptcy
DSCR programs maintain firm rules regarding the recurrence and timing of bankruptcy:
- Multiple Bankruptcies: If the borrower has multiple bankruptcies, they are generally ineligible for our Edge Investor Classic and Elite DSCR programs, regardless of seasoning. Other programs require 4 years seasoning for multiple bankruptcies.
- Active Bankruptcy: Borrowers currently under a repayment plan of a bankruptcy are not eligible for the Prime Non-QM Series. Similarly, the our Edge Elite program states the bankruptcy must have been settled prior to application, and cash-out proceeds cannot be used to settle the BK.
- Foreclosure within Bankruptcy: If a foreclosure was included in the bankruptcy, the seasoning is permitted based on the BK discharge date if the borrower has vacated the property.
Housing History and Credit Requirements
Even after the minimum seasoning period is met, the borrower’s recent payment history must be clean to qualify for a DSCR loan:
- Clean Housing History: DSCR programs typically require a satisfactory 12-month housing history for the borrower’s primary residence (and subject property, if a refinance).
- Our Sharp DSCR: Requires a 0x30x12 (no 30-day late payments in the last 12 months) housing history.
- Recent Events: Loans with credit events seasoned less than 4 years under the Edge program may require the borrower to demonstrate 0x30x12 (no 30-day late payments in the most recent 12 months).
- Explanations: Housing events and bankruptcies in the most recent 2 years must be explained by the borrower with a signed letter of explanation.
Why DSCR Loans Offer Flexibility
DSCR loans, as Non-QM products, are specifically designed to offer flexibility where conventional loans impose rigid waiting periods (typically two to seven years after bankruptcy or foreclosure). This ability to obtain financing sooner is a major benefit for investors seeking to rebuild their portfolios. However, this greater flexibility means borrowers should expect higher interest rates compared to traditional loans.
FAQ's
If the Chapter 13 bankruptcy was discharged, the lookback period starts from the filing date, and the bankruptcy must be discharged for a minimum of 12 months. If the Chapter 13 bankruptcy was dismissed, the dismissal date is used for the lookback period. DSCR No Ratio loans require Chapter 13 to be discharged or dismissed for 2+ years.
Yes, seasoning requirements often depend on the specific DSCR program chosen. Certain programs designed for highly qualified borrowers (like Investor Edge Elite or Horizon Elite DSCR) may require a longer seasoning period of 4 years.
No, cash-out proceeds from the new DSCR loan cannot be used to settle the bankruptcy. The bankruptcy must be resolved (settled) before the loan application.
If the bankruptcy is seasoned less than 4 years, the borrower may be required to show a clean recent housing payment history, such as 0x30x12 (no 30-day late payments in the most recent 12 months).
A foreclosure that was included in a bankruptcy is typically permitted based on the bankruptcy discharge date, provided the borrower has vacated the property. In general, a defaulted first and second mortgage on the same property are considered one event.
Yes, all borrowers must have reestablished acceptable credit verified after the credit event.
No, borrowers who are currently under a repayment plan of a bankruptcy are typically not eligible. The bankruptcy event must be settled prior to application.
No, most DSCR programs strictly state that multiple bankruptcy filings are ineligible, regardless of the time that has passed (seasoning).
The seasoning period begins from the date of the completion, discharge, or dismissal of the bankruptcy event.
The minimum seasoning period required after a credit event, including bankruptcy, varies by program, but the shortest period identified for DSCR programs is 24 months (2 years). However, many programs commonly require 3 years (36 months) of seasoning.
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