Bankruptcy gives individuals struggling to pay their bills a fresh financial start. By offering a way to repay their debt or be absolved of the debt altogether, bankruptcy can turn your life around. But what happens when you want to buy a home? How does bankruptcy affect your ability to purchase a house, and what can you do to increase your chances of homeownership?
If you are thinking of filing bankruptcy, contact The Debt Doctors. Our Springfield bankruptcy attorneys can discuss the circumstances surrounding your financial troubles and explain the full impact a bankruptcy will have, including how it will affect your ability to purchase a home or property. Contact us today for a free initial consultation. Call (417) 466-3328 today.
How Bankruptcy Affects Your Ability to Buy a Home
Filing for bankruptcy may seem like a financial setback, but it's not the end of the road when it comes to owning a home. If you have gone through the bankruptcy process or are contemplating filing for bankruptcy, you may wonder how long you have to wait before purchasing a house. Well, the answer depends on many factors, such as the type of bankruptcy you file and the type of mortgage you are seeking.
Chapter 7 and Chapter 13 Bankruptcy
An individual can file two types of bankruptcy in the U.S. - Chapter 7 and Chapter 13. Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” involves the sale of certain assets to pay off an individual’s debt. Chapter 13 bankruptcy, on the other hand, involves a repayment plan that typically spans three to five years.
How Long After Filing Bankruptcy Do You Have to Wait to Purchase a Home?
Conventional Loans
Chapter 7 - For a conventional loan, the waiting period after a Chapter 7 bankruptcy is typically four years from the bankruptcy discharge date. This period can be reduced to two years if there are extenuating circumstances, like a major medical issue or a job loss that was out of your control.
Chapter 13 - After a Chapter 13 bankruptcy, you can expect to wait two years from the discharge date or four years from the dismissal date. However, if there are extenuating circumstances, this waiting period can be reduced to two years from the dismissal date.
FHA and VA Loans
Chapter 7 - If you wish to obtain an FHA or VA loan after a Chapter 7 bankruptcy, you will generally need to wait two years from the discharge date. Again, extenuating circumstances might shorten the waiting period.
Chapter 13 - You may be eligible to apply for a VA or FHA loan as little as a year after your Chapter 13 bankruptcy plan starts, as long as the bankruptcy court gives you permission and you’ve made at least 12 months of consistent, on-time payments.
USDA Loans
Chapter 7 - If you want to apply for a USDA loan, you can expect to wait three years after a Chapter 7 bankruptcy before being eligible.
Chapter 13 - You can apply for a USDA loan one year after the start of your Chapter 13 bankruptcy plan as long as you have court approval and a record of on-time payments.
Steps to Homeownership After a Bankruptcy
Rebuild your credit - Start rebuilding your credit as soon as possible. This includes paying bills on time, keeping credit balances low, and avoiding new debt.
Monitor your credit report - Check your credit report for errors regularly. Incorrect information can negatively impact your credit score, hindering your ability to purchase a home.
Save for a down payment - Setting aside a down payment can demonstrate financial responsibility and stability to lenders.
Maintain long-term, steady employment - Maintaining stable employment increases your chances of becoming a borrower.
Manage your debt-to-income ratio - Keep your debt-to-income ratio as low as possible. This ratio is critical in the homebuying process.
Be realistic - Don’t stretch yourself financially. Choose a home that comfortably fits within your budget.
Be prepared to pay a higher interest rate - After bankruptcy, you should be prepared to pay a higher interest rate when purchasing a home.
Shop around for the right lender - Different lenders have different requirements and interest rates, so it’s important to shop around.
Contact The Debt Doctors To Learn More
A bankruptcy does not permanently prevent you from buying a home. By understanding the waiting periods and taking steps to rebuild your financial health, homeownership can soon be within your reach. Being patient and focusing on effectively managing your finances, buying a home after bankruptcy is both a realistic and achievable goal.
If you are interested in homeownership but are thinking of filing bankruptcy or have filed in the past, contact The Debt Doctors. Our experienced team of bankruptcy lawyers in Springfield can offer valuable tips on how to achieve your dream of owning a home. Contact us online or call (417) 466-3328 today.
