If you are thinking about buying a new home, but have gone through a bankruptcy you might be wondering “How long after bankruptcy can I buy a house?” And that’s a great question, but one that doesn’t have a simple answer. Therefore, we are going to go over the bankruptcy issue, including what you should and shouldn’t do and when, if you want to buy a house.
Going through a bankruptcy is devastating in so many ways. You can’t borrow money, open or use a credit card (unless it’s secured) and it will also significantly lower your credit score. But don’t let all that stop you from getting on with your life and that includes buying a house. Now, bear in mind, if you’ve just had your bankruptcy discharged, it is going to take some time to get your financial house back in order. However, if you have a game plan for overcoming your current situation, such as making whatever lifestyle changes are necessary, having a solid financial plan in place, staying organized and be willing to practice a great deal of patience, then you will be well on your way to recovery before you know it.
How Long After Bankruptcy Can I Buy a House?
Well the answer to the question “how long after bankruptcy can I buy a house” is, that depends. So let’s go into more detail about what “that depends” really means.
How soon you can buy a house after bankruptcy will depend on what form of bankruptcy you filed, a Chapter 7 or Chapter 13, as will the type of loan you are able to get. Different types of mortgages have different requirements for when you can be considered for a mortgage and that’s in addition to each mortgage company’s own individual requirements as well.
What About Buying a House After a Chapter 7 Bankruptcy?
After a Chapter 7 bankruptcy, you will generally have to wait about four years if you want a conventional loan and two years if you want a FHA or VA loan. There is one exception to this, though. The FHA offers what they call their short-term “Back To Work” program. This program allows qualified buyers who have gone through some sort of severe economic event, such as: a foreclosure, short sale, deeds-in-lieu, bankruptcy or some type of  forbearance agreement, to be considered for this program. The Back To Work program is like a second chance opportunity for homebuyers who have gone through a financial hardship, but are working diligently to get back on their feet. And those who qualify for this program won’t have to wait as long as others to buy a home after a Chapter 7 bankruptcy.
What About Buying a House After a Chapter 13 Bankruptcy?
With a Chapter 13 bankruptcy, the waiting periods are a little different. It’s possible to obtain a conventional loan just two years after discharging a Chapter 13 bankruptcy and the FHA and VA requirements are even more lenient than that. In fact, with an FHA or VA loan, you might be able to buy a home just one year after filing a Chapter 13 bankruptcy, if you qualify. However, you will usually have to show proof that you’ve made 12 consecutive payments on-time. You also have to establish a good credit history, not have any collections, judgments, or late payments of any kind, as well as receive approval from the courts before incurring any new debt.
Are There Any Exceptions To These Waiting Periods?
There are some instances where you might be able to get a mortgage sooner than the two year waiting period; however, you really shouldn’t. If you do, the interest rates and other terms won’t be as favorable as they would be if you spent those two years getting your financial house in order and rebuilding your credit. And don’t forget, you will be paying on that mortgage for 30 years, which is a long time and a huge waste of money in this instance. That’s why you would be better off to just wait out those two years, so you can do what you need to do to get a good interest rate and save yourself loads of money.
The other exception is if your bankruptcy resulted from extenuating circumstances. For example, a major life event that might include the death of your spouse, a serious illness, or some type of natural disaster and so on. Under these types of circumstances, the FHA will allow you to apply for a mortgage 12 months after your discharge date. However, you will need to be able to show documented proof of your extenuating circumstance and that you are financially able to handle a mortgage.
When Can I Not Buy a House If a Bankruptcy Is Involved?
Just about the only time you have no possible option for buying a house is when you are still going through the bankruptcy process. In other words, your bankruptcy must be discharged or no mortgage lender will even speak with you. That also goes for credit counseling or any other type of credit assistance program that takes over your finances for you. The one caveat to that is the above mentioned, which is the extenuating circumstances exception.
Can You Give Me Some Tips for Rebuilding My Credit?
There are several ways to use your waiting period to get your finances in order, such as rebuilding your credit and working to raise your credit score. You can begin by never maxing out any of the credit cards you still have. And don’t apply for too much credit at one time, once you start getting back on your feet. If you no longer have any credit cards, open a secured credit card that’s tied to a savings account equal to the credit limit you’ve been given. And make sure those credit cards report to one or more of the major credit bureaus.
Try to rebuild your credit slowly and when you have some new credit, make sure you make your monthly payments on-time. Better yet, try to make your monthly payments early and make more than your minimum monthly payments whenever possible. It’s also a good idea to show some job stability by keeping the same job for an extended period of time. Then do everything in your power to have any outstanding tax liens removed.
Another great way to rebuild your credit is to if you can afford it, apply for a high interest rate loan like a vehicle loan. This will help strengthen your credit as well, if you make your payments on time. If you do this, you can refinance that high interest rate vehicle loan at a later date as your credit improves. This will help lower that high interest rate you received when you first applied for the loan.
2 Point Highlight
1. If you are thinking about buying a new home, but have gone through a bankruptcy, you might be wondering “How long after bankruptcy can I buy a house?”
2. We are going to go over the bankruptcy issue, including what you should and shouldn’t do and when, if you want to buy a house.
