Can You Buy a House After Bankruptcy?

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Getting back on your feet after bankruptcy can be a gradual process, but it doesn’t mean you have to give up on your dream of buying a home. 

In fact, buying a house is possible just a couple of years after you file for bankruptcy. That said, the length of time you have to wait before getting approved for a mortgage largely depends on the type of loan you’re shopping for and how you’ve managed your credit. 

Read on to learn more about buying a house after bankruptcy. 

How Soon Can You Buy a House After Filing Bankruptcy?

The waiting period following a bankruptcy gives borrowers time to stabilize their finances before taking out another loan. The type of bankruptcy you experience will also play a role in the length of the waiting period before you’re eligible to purchase a home. 

The most commonly filed types of bankruptcy are Chapter 7 and Chapter 13. Read on to discover how soon you can purchase a home after each of these types of bankruptcy.

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    Type of Loan

    Chapter 7

    Chapter 13

    Conventional loan

    4 years

    2 years

    FHA loan

    2 years

    1 year

    USDA loan

    3 years

    1 year

    VA loan

    2 years

    1 year

    How Long After Chapter 7 Can I Buy a House?

    Also known as a “liquidation bankruptcy,” Chapter 7 involves selling nonexempt assets to discharge debts. With a Chapter 7 bankruptcy, the waiting period begins when the action is discharged—approximately four to six months after initially filing the bankruptcy. From that point, you’ll have to wait four years for a conventional loan, three years for a USDA loan, and two years for FHA and VA financing. 

    How Long After Chapter 13 Can I Buy a House?

    A Chapter 13 bankruptcy allows debtors to create a repayment plan to the creditors they owe over a three- or five-year period. Since Chapter 13 bankruptcies involve fulfilling your financial obligations, they impact your credit less severely than Chapter 7 bankruptcies. 

    Therefore, the waiting periods for a Chapter 13 bankruptcy differ slightly. You can get approved for a conventional loan after a two-year waiting period. FHA and VA loans have even more flexible criteria—borrowers can be eligible for these government-backed loans just a year after the discharge date of a Chapter 13 bankruptcy. You will typically need to show at least 12 consecutive months of on-time payments and permission from the court to take on new debt.

    Types of Mortgages You Can Get After Bankruptcy

    After filing for bankruptcy and fulfilling the waiting period, you can get any type of mortgage. However, some mortgage programs have more stringent requirements following a bankruptcy than others. Lenders may also have their own in-house requirements on top of that.

    Let’s take a look at the requirements for different types of loans: 

    • Conventional mortgage: Typically, a down payment of at least 3% is required along with private mortgage insurance (PMI) for down payments below 20%. Borrowers must have a 620 credit score or above and a good debt-to-income ratio (DTI) that is below 45%.
    • FHA loan: Requirements for FHA loans are more lenient, with a minimum credit score requirement of 580 and a maximum DTI of 57%. A minimum down payment of 3.5% is required, and borrowers must also pay an FHA mortgage insurance premium (MIP).  
    • USDA loan: This type of loan is only available for properties located in designated rural areas. There is no down payment requirement or minimum credit score, although lenders typically prefer a 620 credit score or above. 
    • VA loan: The Department of Veterans Affairs (VA) offers loans for veterans, active-duty service members, and eligible spouses. Typically, there are no down payments or credit score requirements. 

    How to Get a Mortgage After Bankruptcy

    If you’ve experienced bankruptcy, here are some steps you can take to improve your chances of getting approved for a mortgage: 

    • Repair your credit: Bankruptcy can take a serious toll on your credit. Tips to rebuild your credit after bankruptcy include paying bills on time, lowering your existing debts, and avoiding taking on new debt. 
    • Write a letter of explanation: A letter of explanation is a document that allows you to explain the circumstances surrounding your bankruptcy. In the letter, explain why you filed for bankruptcy and the steps you’ve taken to improve your financial health. 
    • Get preapproved: Getting preapproved for a mortgage after bankruptcy helps you create your budget, strengthens your homebuying credibility, and helps streamline the overall process.

    Buying a House After Bankruptcy FAQ

    We’ve answered some commonly asked questions about buying a house after bankruptcy below to give you a better understanding of the process. 

    What Is the Best Home Loan After Bankruptcy?

    FHA loans may be the best home loan after bankruptcy because they provide the opportunity to get a mortgage even if you have a low credit score.

    What Is the Waiting Period for Multiple Bankruptcies? 

    The waiting period if you’ve filed for bankruptcy more than once in the past seven years grows to five years before the date of the most recent discharge.

    Are There Exceptions to Waiting Periods?

    According to Fannie Mae, waiting periods can be shortened to two years in documented extenuating circumstances. However, there are no exceptions after a Chapter 13 discharge.

    How Soon Will My Credit Score Improve After Bankruptcy?

    Your credit score after bankruptcy can be negatively impacted for seven to 10 years. However, the impact of the bankruptcy on your credit will decrease over time, so you should gradually see your credit health improve as you manage your credit responsibly going forward. 

    All in all, bankruptcy makes you a riskier borrower, but it doesn’t have to ruin your chances of being a homeowner. During the mandatory waiting period, take steps to reestablish your financial picture. Work hard to improve your credit and understand your mortgage options well before starting your home search. Check your credit reports and credit scores regularly to track your progress. 
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