Most people who file for bankruptcy worry about how their credit and ability to borrow money in the future will be impacted. Bankruptcy adversely affects your credit score in the short-term, but can actually offer long-term benefits. Erasing debts through bankruptcy can put you in a healthy financial situation sooner than you otherwise would have been in if you had carried your debt load forward. After bankruptcy people are surprised how quickly their credit can begin to recover. For some buying a house after bankruptcy in just a few years can be a reality.
Bankruptcy erases debt, it does not erase your ability to ever buy a home.
Buying a House After Bankruptcy
Whether or not you file for bankruptcy, buying a house requires a number of things. For starters, you must be able to afford the monthly mortgage payment and property taxes, have the requisite down payment, and otherwise qualify for the loan. After bankruptcy, buying a house depends largely on the type of loan you are seeking and how you handled your credit after your case concluded.
Type of Loan
Different types of loans and loan programs have different seasoning periods following a bankruptcy filing. Also, individual lenders may have their own internal requirements above the set seasoning periods.
Many bankruptcy considerations hinge on the date the case is filed, but not so with mortgages. The seasoning clock begins on the date of your bankruptcy discharge.
FHA and VA Loans
If you filed a Chapter 7 bankruptcy, the minimum seasoning period for an FHA or VA loan is two years after discharge (plus any additional length of time required by the lender).
The FHA and VA loan programs are more lenient for debtors who filed for Chapter 13 bankruptcy. In fact, the FHA rules allow a lender to consider a debtor still in Chapter 13 bankruptcy so long as the debtor has been making their plan payments for at least one year. Additionally, a debtor in Chapter 13 must ask the court for permission to incur any new debt, including a mortgage. Permission from the Court and bankruptcy trustee are a condition of the loan.
Becoming eligible for a conventional loan after bankruptcy takes more time than eligibility for government-backed FHA or VA loans. In general, after a Chapter 7 bankruptcy, it will take four years after discharge. After a Chapter 13 bankruptcy, it may take less time to qualify for a conventional loan.
Remember that regardless of the loan type, you must meet all loan requirements, including good credit, satisfactory employment history, adequate income, sufficient down payment, and any other financial qualifications to qualify for the home mortgage loan. Additionally, most lenders will require a detailed explanation of the bankruptcy to be submitted with the loan application.
Filing for Bankruptcy Protection
If you are exploring how bankruptcy can help you get out of debt, we encourage you to seek the counsel of an experienced bankruptcy attorney.
Here at the Law Office of Barbara B. Braziel, we have over 35 years of bankruptcy experience. We are the premier bankruptcy law firm in Savannah, GA and we practice exclusively in bankruptcy law.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.