Buying a home after bankruptcy

How Long After Bankruptcy Can I Buy a House?

For many people, it might seem that buying a home after bankruptcy is quite an impossible task. However, it’s not true. Sure, it will take some time and effort before you can be eligible for a mortgage, but it’s not impossible. There are a few regulations and procedures that the debtors will have to follow, a waiting period will be involved as well, but as long as you are patient you will easily accomplish this affair and soon become an owner of your own house again. So, how does it happen, how long do you have to wait and what do you have to do? Read on to get the answers to these questions and tips on what works best.

File a Bankruptcy Case

In the Federal Bankruptcy Code of the United States, there are a few options to file bankruptcy stated in several Chapters. The most common are Chapter 7 – Liquidation, Chapter 11 – Reorganization, Chapter 12 – Adjustment of Debt of a Family Farmer with a Regular Family Income and Chapter 13 – Adjustment of Debts of an Individual with Regular Income. The most common Chapters people are filing are Chapter 7 and Chapter 13; however, Chapter 11 can also work as an alternative to Chapter 7.

Whenever you are seeking a home loan after bankruptcy, there can be different periods of time you’ll have to wait, which depends on the type of bankruptcy and home loan. 

Filing a bankruptcy case involves a range of documents and paperwork that will prove that you are eligible for a bankruptcy Chapter.

Loans You Can Apply For

The type of loan you can apply for determines a process of buying a home after bankruptcy. Each of them will offer a different period to wait before you get approved. Besides, you have to meet the mortgage requirements of a lender. Below, some of the most common mortgage products people apply for after bankruptcy are listed.

FHA Loan

FHA loan is a mortgage insured by the Federal Housing Administration. The borrowers that apply for the loan after bankruptcy have to wait out the FHA’s minimum “seasoning” period which will depend on the Bankruptcy Chapter you’ve filed.

The waiting period of the loan after a Chapter 7 is two years. However, some additional time can be applied by the lender. It’s important to remember that the waiting period begins after the bankruptcy discharges, not after it’s been filed.

When applying for a FHA loan after Chapter 13 bankruptcy, the borrower will be considered even if they are still paying on it. However, it’s possible only if the payments have been made and verified over a period of at least one year. To be eligible to apply for the loan, the borrower will need a trustee’s written approval as well. Besides, the borrower should submit a detailed explanation of bankruptcy, have good credit and employment history, and other financial qualifications.

VA Loan

VA loan is a mortgage offered to veterans or active military members. Usually, the period of qualifying for a VA loan after bankruptcy is shorter than a conventional loan. Just like FHA loan, VA also includes a “seasoning period” which will be different depending on the type of bankruptcy that you encountered.

You can be eligible 2 years  after a Chapter 7 bankruptcy discharge & one year after filing a Chapter 13 bankruptcy.

The conditions are not too different from a FHA loan. After Chapter 7, the borrowers usually wait out two years after the discharge date of bankruptcy, which is still less than it would be with a conventional loan, the period can go up to seven years with them.

After Chapter 13 bankruptcy, the borrowers can become eligible for VA loan after 12 months of removal from filing for Chapter 13 bankruptcy protection.

USDA Loans

USDA loans are also available for you to apply after bankruptcy and, just like the others, have a waiting period and requirements you have to meet. Waiting period after Chapter 7 bankruptcy is regularly three years but under special circumstances (for example, illness or job loss), this time can be reduced to 12 months. 

To qualify for USDA loans after Chapter 13 bankruptcy, you will need approval from a trustee. Besides, the lenders will check your debt payment history. The waiting period will only be one year after being removed from filing bankruptcy.

Improve Your Credit Score During the Waiting Period

Your credit score should be satisfactory to qualify for a loan, and of course, if you file bankruptcy, your credit score will be affected. Commonly, the bankruptcy filing will remain in your credit report for ten years, but it doesn’t mean that you will have to wait ten years till you can get a mortgage.

You have to track your credit report after your bankruptcy discharges and rebuild your credit score to prove to your lender that you are a reliable payer.  Your credit options maybe limited to start rebuilding your credit.  Secured credit cards and installment loans are a good place to start.

The credit limit of a secured credit card is based on your credit history. And by making on-time paybacks on this credit limit, you can improve your credit score by showing that you can be trusted to pay your debt back.

Installment loans are another way and they include personal or car loans that are paid each month. The amount will include the principle payment and the interest. So, if you make your installment payments on time and in full, it will help you to rebuild your credit score.

Also, while you are in a waiting period it is a good idea to consult with your lender three to six months before the waiting period is up. They will be able to find and tell you about any issues you may still have, and you’ll have time to work on them before the period is over.

Buying a house after bankruptcy is possible, all you have to do is be patient and work hard to improve your credit score and rebuild a reputation with a lender. After you’ve done everything that is needed, you will be eligible for a loan and get one step closer to a new house you’ve been looking for.