Yes, you can buy a house after bankruptcy. A bankruptcy is not a permanent black mark that prevents you from financial normalcy. However, you’ll want to know more about the process before jumping into new debt like a mortgage.

How Long Do I Have to Wait After a Bankruptcy to Buy a House?

In most cases, you won’t be able to get a new mortgage to purchase a house until your bankruptcy is discharged or dismissed. If your bankruptcy is dismissed, it does not proceed and your debts are not eliminated. Discharge of debts happens at the conclusion of your successful bankruptcy.

How Long Do I Have to Wait to Buy a House After I File Chapter 7 Bankruptcy?

Chapter 7 bankruptcy, often called “liquidation bankruptcy,” is the quickest type of bankruptcy for individuals. It involves selling certain assets and repaying creditors with that money. You may not be required to repay debts at all. Chapter 7 bankruptcy results in a discharge of all qualifying debts, including unsecured and secured debts.

It can take four to six months to complete a Chapter 7 bankruptcy. This time period varies depending on how much debt you have an if it is challenged. You can speed up the process by being organized and presenting all relevant information to your bankruptcy lawyer as quickly as possible.

Most conventional home loans will want you to wait at least four years after your Chapter 7 bankruptcy is discharged to obtain a new mortgage. However, there are government-backed mortgage loans that are more lenient.

For example, you only have to wait three years after your Chapter 7 discharge to obtain a United States Department of Agriculture (USDA) home loan. You only need to wait two years to get a Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA) loan.

How Long Do I Have to Wait to Buy a House After I File Chapter 13 Bankruptcy?

A Chapter 13 is another type of personal bankruptcy often filed by individuals. It may be called a “reorganization bankruptcy.” This type of bankruptcy allows you to create a three- to five-year payment plan to repay debts. At the end of the payment plan, your debts will be paid or discharged entirely.

If your bankruptcy was dismissed, you must wait at least four years from the date of dismissal before you can obtain most conventional home loans. However, if your bankruptcy was discharged, you must wait at least four years from the date that you filed for bankruptcy and two years from your dismissal date.

There are different standards for government-backed loans. For example, USDA loans only require a one-year waiting period after a Chapter 13 bankruptcy. FHA and VA backed loans only require court dismissal or discharge of your bankruptcy before you apply. Thus, there may be no waiting period at all for a Chapter 13 bankruptcy.

What Type of Home Loan Can I Get After Bankruptcy?

There is no rule or law limiting the type of mortgage you can get after filing for bankruptcy. There are pros and cons to each type that you might consider.

You will have to wait longer to obtain a conventional loan; however, they have fewer restrictions. It is possible to build your credit during and after bankruptcy to support a better conventional home loan. The better your credit score, the lower your interest rate will be.

You can also get government-backed home loans, such as a USDA loan, FHA home loan, or VA home loan. The major benefit for these is that there are generally lower credit requirements. This may allow you to obtain a loan within a shorter amount of time.

How To Apply for a Mortgage After Bankruptcy

Many people obtain mortgages after filing for bankruptcy. You may have to wait a period of time, but you will eventually be eligible for a conventional or government-backed loan that can help you recover the home of your dreams.

Some steps you’ll need to take after bankruptcy to apply for a new mortgage include:

  • Work to repair your credit. Re-establish credit with secured credit cards and pay all bills on time.
  • Write a bankruptcy explanation letter to your mortgage lender.
  • Get pre-approved for a mortgage loan.
  • Answer all lender inquiries about income, assets, debts, and other financial details.

Lenders will likely have many questions for you about your bankruptcy and current finances. It’s best to be open and honest about what led to your bankruptcy and how you plan on avoiding the same situation in the future.

You Can Get a Home Loan After a Bankruptcy

Bankruptcy isn’t the end of the world. You can get a bankruptcy and obtain a home loan to achieve the house of your dreams. However, there may be waiting periods after Chapter 7 and Chapter 13 for certain types of loans.

To learn more about your home loan options after bankruptcy, call Clark & Washington at (865) 689-1777.