Buying a House After Bankruptcy: How Long Will You Need to Wait?

You can buy a house one to two years after filing for bankruptcy if you rebuild credit and avoid new debt.

Filing a Chapter 7 or Chapter 13 bankruptcy will show on your credit report and negatively affect your credit score, but that does not mean you can't own a home while you work to improve your credit. Waiting seven to ten years until the bankruptcy is off your record is out of the question for many people.

In some cases, filing for bankruptcy can actually be the first step towards purchasing a house. If you choose to work with a bankruptcy attorney, they often know real estate agents and mortgage lenders who have worked with people who have a bankruptcy on their credit history.

Timing To Buy a Home After Filing Bankruptcy

You need to consider these factors before you start your house hunt:

  • Did you file a Chapter 7 bankruptcy? Your debt will be discharged, but you may face higher interest rates and difficulty finding a mortgage loan while you still have bad credit.
  • Did you file a Chapter 13 bankruptcy? You will have a repayment plan that must be repaid on schedule. Can you save a down payment while making these monthly payments?
  • Did you keep your car in the Chapter 7 bankruptcy case? Do you still have a car loan?
  • Did you gain more credit card debt for a medical bill post-bankruptcy?
  • What home loans, interest rates, down payment, and credit score requirements does the mortgage lender require?
  • Do you have a down payment? (Extra money usually goes to paying back some debt in a Chapter 13 bankruptcy.)
  • What type of loan do you want?

Overview of Home Loans for Bankruptcy Filers

United States Department of Agriculture (USDA) loans, Federal Housing Administration (FHA) loans, and Veterans Administration (VA) loans do not have a long waiting period after you file for bankruptcy. The clock starts on the day you get the bankruptcy discharge for either Chapter. Generally, you must wait:

  • Two years after filing for Chapter 7 bankruptcy for FHA loans and VA loans
  • Three years after filing for Chapter 7 bankruptcy for USDA loans
  • One year after Chapter 13 for FHA loans, VA loans, and USDA loans

The Department of Veterans Affairs guarantees every VA loan, so a VA mortgage can work well for veterans (or their spouses) after bankruptcy.

A USDA loan comes from the United States Department of Agriculture. Their rural development program guarantees these loans for lower-income residents of rural areas.

Conventional loans require a longer waiting period between filing for bankruptcy and requesting a home loan. These types of loans are not guaranteed by a department or federal organization.

Is an FHA Loan Right for You?

The only government-guaranteed loan is an FHA loan from the Federal Housing Administration. An FHA mortgage can be risky because you lose your house in foreclosure if you cannot make the mortgage payments.

However, it can be less risky to you since the government will pay your mortgage lender if you cannot make the payments. It will not add to your debt, but you will have a foreclosure on your new credit report on top of the bankruptcy filing.

You can get an FHA loan when:

  • Two years have passed since you filed for Chapter 7 bankruptcy
  • You have made one year's worth of on-time payments in your Chapter 13 repayment plan
  • The lender agrees to approve the loan (many lenders have strict rules on top of these general rules)
  • The bankruptcy court agrees you can take on more debt before you have good credit again

Is a Conventional Loan Right for You?

A conventional loan can come from three organizations called:

  • Ginnie Mae: Government-owned loans such as FHA loans, VA loans, and USDA loans
  • Fannie Mae or Freddie Mac: Private loans or government-insured loans (often require mortgage insurance)

You cannot get a lender to approve Fannie Mae or Freddie Mac loans if:

  • You filed Chapter 7 bankruptcy in the last four years
  • You filed Chapter 13 bankruptcy and got a discharge within the last two years
  • Your Chapter 13 bankruptcy was dismissed less than four years ago

Sometimes, the waiting period can be shortened for major life changes, called extenuating circumstances. Things like a divorce, losing your job, or illness or accidents that result in large medical debt are beyond your control. They can reduce your waiting period after these circumstances.

Some banks or private loan officers can choose to underwrite a loan with less strict rules and waiting times, or more strict rules. That always depends on the bank's practices.

You May Need a Credit Score of 500 or Higher To Buy a House

The waiting period and loan approval are essential factors, but some loan officers will not consider you until you rebuild your credit score. Credit scores typically range from 300 to 850.

For each type of loan, you need a credit score of the following:

  • FHA loan: 500+ (but your down payment is lower if you have 580+)
  • VA loan: no minimum credit score (but it is advised to have at least 620)
  • USDA loan: 640+ (if your credit score is lower, it may be up to the individual consultant)
  • Fannie Mae or Freddie Mac: 620-640 is the lowest they will accept

If your bankruptcy was years ago, but no one will loan to you, you may have options. There could be misinformation on your record or an outdated credit score.

Talk to a bankruptcy attorney about the issues you face in the home buying process to learn about your options. A new home is attainable within one to two years after bankruptcy if you take the right steps and seek legal guidance during the bankruptcy journey.

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