Getting bankrupt isn’t fun at all. It makes you feel like you will never get back to your financial status again. To make matters worse, you may end up feeling like you will never own a property of your choice, a home, to be precise.
But did you know that bankruptcy is not the end of life? It’s not a constant status in your life. Being bankrupt does translate to losing hope in everything. The good news is that you can still get your life together and pick up once again, even though your credit score might be affected once you announce your bankruptcy.
Is it possible to buy a house after filing for bankruptcy?
Buying a home can be quite a challenging venture. Things could get even worse if you run bankrupt. However, there’s still a possibility that you can own your own home regardless of declaring bankruptcy. Research by the Consumer Financial Protection Bureau shows that those who announce their bankruptcy have a better credit score than those who decide to deal with their challenging financial status and adopt bankruptcy.
It would be best to keep in mind that declaring bankruptcy saves you from unnecessary debts. So, in other words, filing for bankruptcy marks a new start for you. You can still purchase a house with cash. However, if you need to borrow money, it could be a little bit difficult because your credit score starts to decline after you declare bankruptcy. Remember, you will have a history of late payments of loans and credits. However, you can continuously improve your credit score by reestablishing a positive credit history. You can only achieve this by clearing your loans on time and in full amounts.
How Long Can You Buy A House After Filing for Bankruptcy?
I must say, this will depend on a couple of factors. These include:
- The type of mortgage you are eligible for
- Your Lender
- Type of Bankruptcy you filed for
- The cause of your bankruptcy
I know you want to know how the factors mentioned above will affect how soon you can purchase a house after declaring bankruptcy. Well, let me break it down for you.
First of all, let’s look at the types of bankruptcy.
It is also known as liquidation bankruptcy. All your debts get discharged in this type of bankruptcy once you file for it. It stays on your credit history for ten years. However, this doesn’t mean it will take ten years for you to qualify for any mortgage.
So how long should you wait if you file a chapter 7 bankruptcy?
With a chapter 7 bankruptcy filed, you cannot borrow FHA (Federal Housing Administration) Loans until after two years. It would be best to improve your credit score within this waiting period.
It is also referred to as Payment Plan Bankruptcy. A chapter 13 bankruptcy gives you 3-5 years to pay your creditors the amount you can afford. After that period, the court discharges all the outstanding debts. Your credit report will bear a chapter 13 bankruptcy for up to seven-year years. However, you can always apply for a mortgage before then. But you will always need to get a permit from the court whenever you want to apply for a mortgage.
Common types of Mortgages
There are several mortgages you can apply for. However, in this post, we will review only the common types. These include the following:
This is the most common type of mortgage.
Conventional home loan requirements
- You need to have a credit score of 620 and above
- A down payment of 3% and above
- Pay for PMI if you make a down payment of less than 20%
FHA Home Loan
This type of mortgage is insured by FHA (Federal Housing Administration).
FHA home loan requirements:
- You need to have a credit score of 580
- A down payment of 3.5%
If you can afford to make up to 105 down payments, you can get the FHA loan with a credit score of at least 500.
VA (Veteran Affairs) home Loan
So, the VA mortgage is insured by the Veterans Affairs department. This type of mortgage allows you to purchase your house with as little as zero down payment. Another interesting fact about VA home loans is that the interest is too low and affordable.
The VA home loan has the least requirements compared to other house loans. It will be the best choice if you have a low saving rate.
So now, you see, being bankrupt doesn’t translate to being hopeless. All you need to do is get yourself together, accept that you are bankrupt, and file a bankruptcy report. That way, you will find it easy to recollect yourself and get back to your feet.