Is Buying a House After Bankruptcy Possible?
You may have to declare bankruptcy to save your financial future, but that does not mean that you need to give up your dream of owning a home. You can still buy a house after bankruptcy. You need to wait a few years though, because that’s one of the stipulations to qualify for the loan.
How long of a period of time you need to wait depends on the type of bankruptcy you filed because, with either type of filing, your credit takes a huge hit. Chapter 7 and Chapter 13 have different waiting periods. Most people file for Chapter 7 bankruptcy. The court wipes away your qualifying debts. A Chapter 13 bankruptcy reorganizes your debts. You make scheduled payments to your creditors, but you get to keep your assets.
When Can I Buy My House After Bankruptcy?
With a Chapter 7 bankruptcy, your situation and the loan type create a difference in the waiting period for buying a new home.
For a conventional loan, you wait four years after a court dismisses or discharges your bankruptcy.
For a USDA loan, you wait three years after a court dismisses or discharges your bankruptcy.
For an FHA or VA loan, you wait two years after a court dismisses or discharges your bankruptcy. or dismissal.
Although you keep your assets, you still have a significant waiting period before you can get a loan with Chapter 13. The waiting period depends on the court's handling of your bankruptcy.
You can apply for a loan after four years if the court dismisses your bankruptcy.
You can apply for a loan after four years from the date you filed for bankruptcy and two years from your dismissal date.
You can apply for a loan after one year from the discharge or dismissal.
You can apply for an HA or VA loan as soon as a court dismisses or discharges your loan.
Repairing Your Damaged Credit Score
Your damaged credit score from the bankruptcy proceeding has to recover before you can apply for a loan. The elimination or reduction of your debts should enable you to begin rebuilding your assets and savings. While you rebuild your savings, you won’t be able to take out new credit cards or other loans. You may need to wait longer than the minimum time to apply for a home loan. You definitely need to rebuild your credits before you apply.
You came to the right place since the Goalry brand of sites offers exactly the financial education you need. Besides saving your money, learning the techniques to rebuild your credit can get you to the point of obtaining a mortgage.
First Steps to Credit Repair and Rebuilding
Step One:
You obtain the discharge of your bankruptcy. The term bankruptcy discharge refers to a court order releasing you from any liability regarding the debts named in the bankruptcy proceedings. This order prohibits creditors from trying to collect on the debts again since they have already been discharged. Lenders need to see this court order before considering you for a loan. It often precedes the closing of the bankruptcy case.
Step Two:
You check your credit report for accuracy and up-to-date information. The bankruptcy remains on the credit report for 10 years. Analyze your credit report. Make sure you obtain one of each of the reports from TransUnion, Experian, and Equifax. By getting one of each, you can check the information on the sum total of your credit report. You need to look at all three because each creditor sends their information to different bureaus. Look for debts you already paid off. It is illegal for a creditor to report a discharged debt as late, owed, outstanding, converted to a new debt, or as having a balance due or past due. File the dispute form. Here are a few other reasons to file the dispute form:
Information that does not apply to you or your finances because it relates to someone with a different Social Security number or address or name.
Information that appears because someone stole your identity and opened accounts in your name.
Any accounts from a former spouse. Their debts become their own as soon as your divorce unless you incurred the debt as a couple such as purchasing a house or car together. Their loans and credits that are only in their name are solely their own debt.
Old or outdated information such as your former address that appears as your current address.
Accounts note the wrong reason for their closure. For example, you closed an account, but the credit report says the creditor closed it. The same is true if the creditor closed it, but the report says you did. This is important either way because you need to show veracity, but you really need to dispute the occurrences of an account you closed getting reported as closed by the creditor. When they close an account, it typically means you were hopelessly behind on payment, or you just never used the credit. When you close it, it says you chose to reduce the amount of credit you have. You made the positive decision and, yes, the formula they use for calculating risk does prioritize it when you close the account.
Inaccuracies regarding your bankruptcy. If you see accounts reported as part of your bankruptcy filing that was not included in the court filing, correct that information. Conversely, if you see accounts listed as open or active that you did include in the bankruptcy filing, you need to address that, too.
Step THREE:
Now that you have your credit report accurately representing your current situation, you can start rebuilding your credit score. You still have to wait until your bankruptcy discharges, but you start rebuilding your credit now. You need to complete the waiting period for the mortgage type you want, but you can rebuild with installment loans and secured credit cards until then. Start at least a year before your want to take out your mortgage because you have to show that you can and will repay your debts. Which option you use depends upon your situation. This requires that you have money in the bank regardless of whether you take out a loan or credit card. You must be able to prove you can repay it and you must secure the loan or the card with collateral cash.
Perhaps you fondly remember when you first established yourself in adulthood. You saved up your money until you had at least six months’ worth of rent and utility money. You get to do that again, but this time with the dedicated intent of securing a loan. You will use this money as collateral to obtain an installment loan or secured credit card.
Installment Loans
Since you just declared bankruptcy, this might be the tougher of the two to land. When you obtain an installment loan, you agree to make a specific, regular payment that includes both interest and part of the principal. The specific number and schedule of these payments get set by the bank at the outset of the loan. Installment loans include car loans and personal loans. You must make every payment on time or early. You have to make the full payment every month. Make sure you can service the debt before you take out the loan.
Secured Credit Cards
With a secured credit card, you also need to have money in the bank. You literally link your new credit card to a savings account either with the bank you open the card with or to your existing savings account. Do not expect a massive credit line regardless of what you got used to having before bankruptcy. Declaring bankruptcy says you admit that you cannot handle money, so credit card companies will consider you a huge risk until you prove you learned how to manage it and you will always pay them.
The money you place in the saving account that ties to the secured credit card will establish your credit for it. These cards typically have a credit line of between $200 to $2,000. If you recall obtaining your very first credit card in college, you probably had a $400 credit line. You returned yourself to that square one by declaring bankruptcy. You must start over and reestablish your credit from the start. As with the loan, you must make every payment on time or early. Have the money in the bank to pay it, so you can make all payments ahead of their due date.
The reason you spent so much time and effort on step two are that in step three, they use your credit score even though you prove you already have the money to pay, and you link a savings account to the card or loan to guarantee it. You cannot work around this. You have to reestablish your credit score to a decent level and then get one of these items. There is not another way. You must do this before you apply for the mortgage. You need to make at least six months of on-time, full payments before you try for a mortgage.
And if you do not yet have a savings account, we can help you find a perfect one! Take a look at the options below and choose the one that works best for you:
Step four:
Ideally, you wait two years after your bankruptcy discharge to try for a mortgage.Sure, you might technically qualify before then, but to earn the really decent interest rates, you wait. Rather than hurry, wait. If you do the math, you realize that there is a massive difference between qualifying for a 5 percent rate and a 15 percent rate. It affects your total loan, the fees you pay, your monthly house payment, the amount of total interest you pay. If you buy a $100,000 home, would you rather pay an extra five or an extra 15 percent of that for 10 or 20, or 30 years?
Consider the different types of loans for mortgages. You will probably find it toughest to land a conventional mortgage.
If you qualify for a VA loan, go for it. They want to help veterans buy homes and the program goes the extra mile to help them qualify.
FHA loans can make great choices for first-time homebuyers.
If you can qualify for a USDA loan, use that program.
Contact each home mortgage program for their specific, updated requirements. Use firsthand information only, so you obtain the latest information. Another advantage to this is you establish contact with a human being with their program. While most people assume everything gets automated nowadays, the truth is that program administrators and program coordinators can still step in to make an exception when an individual misses qualifying by an infinitesimal amount. By reading their latest information online, then phoning to talk to an individual and ask questions first, you establish a rapport with someone in that program. This person can become your “champion” in the system, provided that you genuinely do all that you need to do otherwise, such as going through steps one through three diligently to reestablish your credit.
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