Have you experienced bankruptcy? If so, you most likely have questions about how to return to a normal state of affairs—such as, can you buy a house after bankruptcy?
Some people experience feelings of failure after bankruptcy, but it’s important to remember bankruptcies don’t stay on your record forever. And yes, it’s even possible to purchase a home after bankruptcy, given the right conditions.
If you’re looking to buy a house after bankruptcy, keep reading! This article explores how to buy a home after bankruptcy, including how long you’ll likely need to wait to apply for a home loan based on the type of bankruptcy you experienced.
Buying a House After Bankruptcy
Yes, it’s possible to buy a house after filing for bankruptcy. However, the exact course of action can vary depending on the type of bankruptcy you experienced and the type of home loan you’re looking to take out.
The main challenges you’ll face while trying to get a mortgage after filing for bankruptcy may be mandatory waiting periods and rebuilding your credit score. While these may be challenging hurdles, remember that many people have overcome them to successfully buy a home after bankruptcy—even if it takes a little time.
How Long After Bankruptcy Can I Get a Mortgage?
If you’ve experienced bankruptcy, you’ll need to wait until after the judge discharges your bankruptcy before you can get a home loan. The exact amount of time depends on whether you’ve experienced Chapter 7 or Chapter 13 bankruptcy.
Let’s take a look at the two different types of bankruptcy in more detail.
Buying a House after Chapter 7 Bankruptcy
Chapter 7 bankruptcy is the most common type of bankruptcy. During this type of bankruptcy, a judge waives qualifying debts owed by the individual experiencing bankruptcy. This debt cancellation has its benefits, but in most cases, it could be the first step to improving your credit score.
The process for purchasing a home after Chapter 7 bankruptcy also depends on the loan type you are attempting to qualify for. Here’s how:
- Conventional loans: After experiencing Chapter 7 bankruptcy, you’ll need to wait at least four years after your discharge date to qualify for a conventional loan. This waiting period is mandatory. You can use the time to rebuild your credit and sort out your finances.
- Government-backed loans: Compared to conventional loans, government-backed loans are more forgiving. You’ll need to wait at least three years after your discharge date to qualify for a loan from the United States Department of Agriculture (USDA) and two years after bankruptcy discharge for a Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA) loan.
Buying a House after Chapter 13 Bankruptcy
Chapter 13 bankruptcy is less damaging than a Chapter 7 bankruptcy. When an individual experiences this type of bankruptcy, the court reorganizes their debts instead of canceling them. Individuals who file for Chapter 13 bankruptcy may still need to pay their creditors. However, in most scenarios, Chapter 13 is less damaging to an individual’s credit score than Chapter 7 bankruptcy.
Like Chapter 7 bankruptcy, the process for purchasing a home after Chapter 13 bankruptcy also depends on the type of loan you’re applying for. Here are the differences:
- Conventional loans: Once a bankruptcy court discharges your Chapter 13, you must wait at least two years before applying for a conventional mortgage. However, if your Chapter 13 was dismissed, you have to wait four years from the date of dismissal.
- Government-backed loans: You must wait one year after filing for Chapter 13 bankruptcy to apply for a USDA loan with permission from the courts. However, you can apply for an FHA or VA loan immediately after Chapter 13 discharge.
Applying for a Mortgage After Bankruptcy
Aside from enduring your waiting period, there are a few other actions you might take to give yourself the best chance at qualifying for a home loan. Let’s explore each of these steps in detail!
Rebuilding Your Credit After Bankruptcy
After experiencing bankruptcy, you’ll likely need to rebuild your credit score before applying for a loan. The higher you can get your credit score, the better your chances of being approved.
According to the Federal Trade Commission, there are three main ways to rebuild your credit after bankruptcy:
- Pay your bills on time
- Have credit
- Use credit responsibly
All of these actions may help you build a solid credit history.
Writing a Letter of Explanation After Bankruptcy
A letter of explanation allows you to explain your financial situation and justify your reasoning for declaring bankruptcy. Within this letter, you can include the extenuating circumstances that led to your decision to file, the steps you’ve taken to change your financial situation and rebuild your credit history, and how you intend to prevent future bankruptcy.
Getting Prequalified After Bankruptcy
Once you have established credit and a good payment history, you may be able to get prequalified for a mortgage. Getting prequalified by a lender tells you how much money you can likely get for a mortgage loan and lets you know which homes are in your budget. It’s one step closer to securing a mortgage!
The Final Word on Getting a Mortgage After Bankruptcy
In summary, yes, it’s possible to get a mortgage and buy a house after bankruptcy. The time you have to wait between your bankruptcy and buying a home depends on the type of bankruptcy you experienced and the type of loan you want to apply for.
If you've had a recent bankruptcy, you'll likely need to wait longer before submitting a mortgage application. However, some loan programs like those offered by the FHA or VA may be a good idea if you’ve experienced Chapter 13 bankruptcy. These loans have the shortest waiting period, and you can apply for them immediately after the court discharges your bankruptcy.
If you’re starting to consider buying a new home after bankruptcy, check out our available homes today and get prequalified with our affiliate lender, Inspire Home Loans®, who has expert answers to all of your mortgage questions.
Buying a House After Bankruptcy FAQ
Here are some frequently asked questions regarding buying a house after bankruptcy.
How long after Chapter 7 can I buy a house?
You can apply for a conventional loan four years after a judge discharges your Chapter 7 bankruptcy and a two-year waiting period for some government-backed loans (VA and FHA loans). However, USDA loans require individuals to endure a three-year waiting period.
How long after Chapter 13 can I buy a house?
You can apply for a conventional loan two years after your discharge date and four years after your filing date for Chapter 13 bankruptcy. The waiting period for a USDA loan is two years after the filing date, while individuals can apply for an FHA mortgage or VA loan immediately after filing.
Does filing for bankruptcy impact your credit score?
Yes, filing for bankruptcy impacts your credit score. Out of the two most common types of bankruptcy—Chapter 7 and Chapter 13—Chapter 7 is typically more damaging.