Do not worry; getting a home loan after bankruptcy is not as hard as you think. As a matter of fact, you actually have plenty of options. Here are five of the best bad credit programs for obtaining a home loan after you have suffered through a Chapter 7 or Chapter 13 bankruptcy proceeding.
Have I Checked With the Federal Housing Administration (FHA)?
The FHA has a solution for nearly anyone who wants to buy a home in good faith, and people with a bankruptcy on their records are no exception. The FHA has a program specifically for this contingency, and if you are willing to go through a few rigors, the government will help you get back on your feet in the real estate market.
In order to get started with your new financial life, the FHA requires that you wait at least two years after the discharge of a Chapter 7 bankruptcy. You can actually take on an FHA loan while you are paying off a Chapter 13 bankruptcy under certain circumstances. The waiting period is an advantage: You should take that time to improve your credit score and create a long term record of payment to your creditors. Once you have done this, you can get the most advantageous interest rate, which will save you money over the life of your new loan.
What About Conventional Loans?
You can also take on a conventional loan with conforming properties with a similar waiting period. Because you are not being backed by any government agency, you will have to negotiate with your lender more directly; however, most lenders adhere to the same industry standard waiting time of two years for a bankruptcy. During that time, you can build a relationship with your banker, showing him goodwill and good faith as well as concrete action towards an improved credit record. One of the best moves here is to initiate a prequalification program under the tutelage of your primary banker. You are not legally bonded to anything with this informal program; however, you will get to see how your banker views your financial records at that time. You will also learn how to put your financial records in order so that a professional would appreciate the organizational structure.
If I Am a Veteran, Can I Go Through the United States Department of Veterans Affairs (VA) After a Bankruptcy?
The VA has a program that takes a great deal of inspiration from the FHA bankruptcy program. As long as you can provide an explanation of the bankruptcy to the VA, you are back on the path to a better record and your next home mortgage. You do have to pass through some other quite stringent criteria, however.
First of all, you will need to have a minimum credit score of 620. This may take some time to gather, as a bankruptcy can drop your credit score by more than 240 points. If your bankruptcy is Chapter 7, then you must wait at least two years after the discharge. For a Chapter 13 bankruptcy, you can start the process of a new home loan after making at least a full year of on time payments. Keep the documents so that you can prove a paper trail and good faith to your banker. You may also need the approval of a bankruptcy court in order to go ahead with a new loan, but truthfully, veterans are given priority as long as their other financial records are in order.
Can I Go to the United States Department of Agriculture (USDA)?
The USDA runs a Rural Housing Program that subsidizes real estate in eligible areas, not all of which are in rural areas, believe it or not. The waiting period here is a bit longer than the wait time for an FHA or a VA loan: You cannot initiate a new home loan until three years after a Chapter 7 bankruptcy is fully discharged. However, the Chapter 13 bankruptcy waiting period is the same. As long as you have made at least 12 payments on time, you can start in on the process of a new home loan as long as the loan has a court approval. You will also have to meet the criteria of location and other criteria that the USDA may put forth.
Can I Get a Guarantor?
You may be able to skip some of the waiting period if you bring a guarantor into the picture. This third party to the loan must guarantee that he or she will pay the loan back to the lender if you default on it. This may be a bit difficult to convince any but the closest family or friends of, so be very careful how you manage your personal and business relationships when you ask someone to be a guarantor.
A guarantor may allow you to skip the line, but you should still be sure that your finances are in order. It will still benefit you to go through a prequalification with your lender. The standards are put into place for a reason: Banks have more experience than anyone about the financial structure that it takes to consistently pay off a home loan without being late. If you cannot pass muster, then you should probably wait to start on a new home loan.
2 Point Highlight
Because you are not being backed by any government agency, you will have to negotiate with your lender more directly; however, most lenders adhere to the same industry standard waiting time of two years for a bankruptcy.
As long as you can provide an explanation of the bankruptcy to the VA, you are back on the path to a better record and your next home mortgage.
