Can You Buy a Home After Bankruptcy?

Can You Buy a Home After Bankruptcy?

If you have gone through bankruptcy, buying a home can seem like something that is out of reach. But while it is more difficult to qualify for a mortgage, it is still possible.

Can You Buy a Home After Bankruptcy? A Helpful Guide

Let’s look at the things you can do to recover your financial situation, allowing you to buy a property after you have gone through bankruptcy.

How Soon After Bankruptcy Can You Get a Mortgage?

Before you apply for a mortgage, you need the judge to discharge your bankruptcy. Even then, there might be a period to wait before your mortgage application will be accepted. How long this takes depends on the type of bankruptcy you have gone through.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy and Buying a HomeDuring a Chapter 7 bankruptcy, the court will remove most of your debts. While this removes many of your problems, your credit score is going to be negatively affected as well.

If you intend to get a conventional loan following Chapter 7, you’re going to need to wait four years or more. This period begins after the judge has dismissed or discharged your case.

If you want to get a government-backed mortgage, you won’t have to wait as long. Getting a mortgage through either FHA loans or VA loans only requires you to wait 2 years after the judge has discharged the case. You will need to wait a year longer for a USDA loan, however.

Chapter 13 Bankruptcy

If you end up going through Chapter 13, it will mean you’ll still need to make payments to creditors. Thanks to this, however, there will be less of an effect on your credit score, and you can continue to hold onto assets.

With a conventional mortgage, you might still need to wait four years with Chapter 13. If your bankruptcy is dismissed by the court, you’ll need to wait four years from that date before you can start the mortgage application process. When the bankruptcy is discharged, you’ll need to wait four years from the filing date and two years from the dismissal date.

With a government-backed loan program, you might not have to wait at all. The FHA and VA loans programs only need a judge to dismiss or discharge the bankruptcy before you can start your mortgage application. With a USDA loan, you are going to need to wait a year after the case has been discharged or dismissed.

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How Does Bankruptcy Affect Your Credit Score?

Does Bankruptcy Affect Your Credit ScoreAfter your bankruptcy has been dismissed or discharged, it will still stay on your credit report. For a Chapter 7 bankruptcy, you can expect this to last for 10 years, whereas a Chapter 13 bankruptcy will continue to negatively affect your credit score for 7 years.

Bankruptcy will lower your credit score, which will make applying for loans more difficult. Having a low credit score also means you will likely need to pay more for the mortgage because of higher interest rates and additional fees. A larger down payment might also be required in some cases.

Some types of loans, however, make it easier to get a mortgage even with a lower credit score. FHA loans can allow people to qualify with a credit score in the 500’s, though typically, the requirement is 580.

Applying for a Home Loan After Bankruptcy

Even with a bankruptcy on your record, you aren’t prevented from applying for any type of mortgage as long as enough time has passed. As we have shown, some mortgages are easier to apply for following a bankruptcy, like government-backed loans. But there are some things you can do to help your application and the mortgage terms available to you.

Boosting Your Score

If your credit score is below 580, you’ll need to do some things to improve it before you apply for a loan. Even if your score is above that, you should work on improving it.

There are some basic things that you can do to improve your credit score. Let’s take a look.

How to Boost Your Credit ScoreRe-Establish Credit

The bankruptcy might have resulted in your old accounts being wiped from your credit report. To improve your credit score, you need to re-establish that you are responsible with credit.

An easy way to do this is to get a secured credit card. With a secured credit card, you will pay a deposit to the credit card company and this will be used as your line of credit. Because of this, you don’t need a good credit score to be approved.

You can then use the card and make sure you pay it off each month to improve your credit score.

Paying On Time

A big part of your credit score is whether you pay your bills on time or not. If you had problems paying bills in the past, consider setting up an auto-pay service.

Dealing With Your Debt

You need to use any extra money you have to deal with debts. This will indicate to lenders that you are serious about improving your financial situation and put you in a better position to qualify for a home loan.

Explaining Your Situation

To improve your chances of getting approved for a mortgage, you can write a letter of explanation to the lender. As you might imagine, bankruptcy doesn’t look good in your credit report, so you need to do as much as possible to convince the lender that it won’t happen again.

You can use the letter to explain what went wrong and how things have changed, as well as the things you are planning to do to not let it happen again.

Also, with a bankruptcy on your credit report, there is a greater chance that a lender will have extra concerns. If the lender contacts you to ask additional questions, make sure you respond quickly, honestly addressing their concerns.

Pre-approval

Once you have done everything to improve your credit score, it’s time to apply for pre-approval. This isn’t the same as pre-qualification and involves deeper checks. This also gives you a full understanding of how much you can afford to spend on a new home.

A pre-approval letter also shows sellers that you are a serious buyer, something that is more important since you have a bankruptcy in your past.

Final Thoughts

If you’ve been through bankruptcy, you are still able to get a mortgage, though you might have to wait. You should also work on your credit score before you apply for a mortgage, to improve your chances and the terms the lender will offer.

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About the Author

Top Wellington Realtor, Michelle Gibson, wrote: “Can You Buy a Home After Bankruptcy?”

Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.

Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.

Can You Buy a Home After Bankruptcy?

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Michelle Gibson Wellington Florida REALTORMichelle Gibson of the Hansen Real Estate Group Inc is a full-time REALTOR who has been specializing in Wellington Florida real estate since 2001. This veteran of the real estate industry has expertise in technology, marketing, and social media.

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