How Soon Can I Buy a House After Bankruptcy

Bankruptcy is a powerful tool that gives individuals a second chance at financial stability by allowing them to either have their debts forgiven or reorganized. This legal process can be a lifesaver for those struggling with overwhelming debt, but it can also have a lasting impact on a person's credit score and future borrowing capabilities. For some who have recently gone through the bankruptcy process or are considering it, the question of when they can buy a house again is likely on their mind.

So today, we'll delve into the various factors that can impact your ability to purchase a home after bankruptcy and examine the loan options available to those who have been through this process.

What Factors Affect How Soon You Can Buy A Home After Bankruptcy?

If you're considering bankruptcy or have recently filed, several factors can affect how long you will have to wait to buy a home. For example, it may matter what chapter of bankruptcy you filed, how long it's been since your filing, your credit history, and your credit score. Let’s take a look at the impact of each in more detail.

Bankruptcy Type

When determining the timeline for purchasing a home after bankruptcy, the type of bankruptcy you filed is a crucial factor to consider. Suppose you opt for Chapter 7 bankruptcy, which is a liquidation process. In that case, it may take longer to buy a house as compared to filing for Chapter 13 bankruptcy, which is a reorganization procedure.

The difference in the duration of impact on your credit score and borrowing capabilities stems from the nature of the bankruptcy process. In Chapter 7 bankruptcy, your non-exempt assets are sold to pay off debts, whereas, in Chapter 13 bankruptcy, a repayment plan is established to pay off debts over a period of three to five years. This repayment plan structure often results in a quicker recovery of credit score and borrowing abilities as compared to Chapter 7 bankruptcy.

How Long Has it Been Since the Bankruptcy was Filed?

The next factor you need to consider is the amount of time that's passed since you filed. Typically, the longer it's been since you filed for bankruptcy, the higher your chances of getting approved for a home loan. In fact, most experts warn that it's best to allow yourself and your financial situation ample time to recover before making any major purchases.

Credit History and Score

As you probably already know, your credit history and score are vital factors that lenders consider when determining your creditworthiness. Hence, if your credit history is limited or your credit score is low, it may be harder for you to get approved for a home loan following the bankruptcy. Alternatively, it's usually easier to obtain approval with a solid credit history and decent credit score.

What Loan Options Are Available Following Bankruptcy?

The good news is that there are several viable loan options for those who have gone through bankruptcy. These options range from FHA and VA loans to USDA and conventional loans requiring a higher down payment. To help you understand the specifics of each loan type, let's take a closer look at them below.

FHA Home Loans

FHA or Federal Housing Authority loans are one of the most popular options for those who have filed for bankruptcy. Just beware that you must wait a period of one year after filing for Chapter 13 and two years after filing a Chapter 7 bankruptcy. The reason FHA loans are so popular is that they are government-backed and offer more flexible requirements than other loan types. With this, you should know that FHA loans may require higher mortgage insurance rates and a down payment of at least 3.5 percent.

Are you or your spouse an active member or veteran of the U.S. military? If so, you may be eligible to qualify for a VA home loan after bankruptcy. These loans are guaranteed by the Department of Veteran Affairs and also offer more flexible requirements than other home loans. Just beware that, much like FHA loans, you may need to wait a minimum of two years after filing for Chapter 7 or one year after Chapter 13 bankruptcy. Yet, when compared to FHA loans, VA loans generally offer lower mortgage insurance rates and require no down payment.

USDA Home Loans

Another great option for borrowers after bankruptcy is USDA loans issued by the United States Department of Agriculture. These loans are typically available to those who are low to moderate income and looking to buy a home in a suburban or rural area.

If you want to qualify for a USDA home loan, you should wait for three years after filing for a Chapter 7 and a minimum of two years after a Chapter 13 bankruptcy. The primary benefit of these loans is that they do not require down payments and offer mortgage insurance premiums that are lower than with FHA loans.

Conventional Home Loan with a Higher Down Payment

A lucky few manage to come out the other side of bankruptcy with a larger down payment saved and a good credit score. If this sounds like you, then you may take comfort in knowing that you still may be able to qualify for a conventional home loan. The main difference is that conventional loans are not backed by the government, so beware that they do require more stringent credit requirements than VA or FHA loans.

Still, the good news is that these loans may offer lower mortgage insurance rates and more flexible terms. When attempting to qualify for a conventional home loan, be sure to wait a minimum of two years after Chapter 13 bankruptcy and four years after a Chapter 7 filing.

Ready to Buy a House After Bankruptcy?

At the end of the day, bankruptcy may pose some challenges when it comes to buying a house, but it is not an impossible obstacle. By taking the time to improve your credit, saving for a down payment, and seeking guidance from a lender or mortgage broker who has experience with post-bankruptcy cases, you can increase your chances of securing a mortgage and realizing your dream of homeownership.

If you're considering buying a house in the Mid Missouri region, we invite you to reach out to the Heartland Network. Our team of experienced real estate professionals is equipped to help you navigate the complexities of buying a house after bankruptcy and find the right loan solution to suit your needs. Get in contact by filling out our short Contact Us form below or give us a call today.