Buying a Home after Bankruptcy
It’s been close to a decade since the housing downturn of 2008, which put many homeowners into foreclosure and then bankruptcy. This is important because a bankruptcy takes up to 10 years to be removed from a credit report. In 2017, the housing market is still recovering as is the job market—but both are looking much healthier than they did 9 years ago.
If you’ve had to file Chapter 7 or Chapter 13 bankruptcy after a foreclosure, you and many other people may be wondering if you can ever buy a home again. You may feel like your credit may never be able to recover after taking such a hit. The answer is – you can. Research has shown that you’re most likely not going to enter into bankruptcy again and that your credit scores will bounce back more quickly after a bankruptcy compared to those who didn’t file.
So, if you’ve been able to get back on your feet, the main issue to home ownership is understanding when you can buy a new home.
First, you need to make sure that your bankruptcy has been discharged, meaning that you are no longer liable or legally required to pay your debts. If you’re still undergoing bankruptcy proceedings, then you will not be considered for a loan.
For Chapter 7 bankruptcies, once your bankruptcy has been discharged, you can start counting down to when you can get a new loan. It’s usually a four year waiting period, but here is a breakdown of the waiting periods based on the type of loan:
- Conventional mortgages: 4 years
- FHA loans: 2 years
- VA home loans: 2 years
- USDA home loans: 3 years
For Chapter 13 bankruptcies, your waiting period may be shorter, with two years for a conventional loan after your bankruptcy has been discharged. Government-backed loans can have an even shorter waiting period of one year, but you’ll need to show that you’ve had 12 months of timely payments plus court permission for you to take on new debt.
If you had a foreclosure after a bankruptcy, then your timeline for waiting can look confusing. For foreclosures, the waiting period is seven years for conventional loans. But with a true bankruptcy discharge, the waiting period starts from the bankruptcy discharge, not from the foreclosure date.
So how can you improve your chances of being approved for a new mortgage? There are a few things that will bolster your chances for a loan approval.
Get Your Finances Organized
A crucial part of re-establishing your credit is creating an unbroken chain of on-time payments. You’ll also want to make sure that your credit report is up-to-date and free of errors. You can get your annual credit reports for free from all three credit reporting agencies: Equifax, Experian, and TransUnion. You should consult a financial advisor on the best solutions for re-establishing your credit.
Budget, Save and Shop Around
Having a budget will help you save money for your new home. You should know where every dollar and cent is going. You should be prepared to pay 20 percent of the home you want to buy as the down payment. By doing so, you’ll be able to have a smaller mortgage payment, meaning you’ll be taking on less debt.
As you shop around for your new home, remember that you’ll be paying for more than a mortgage. Homeownership costs can add up, so factor in utilities, maintenance, and repairs, homeowners’ insurance, property taxes, etc. If all these costs start to cost more than around a third of your income, you should consider a more affordable home.
If you are facing a bankruptcy, you should contact a skilled bankruptcy attorney for expert guidance and legal counsel. Contact Lanna Martin Kilgore, Attorney at Law, today to learn how she can help you with your bankruptcy questions and concerns. Call our office at (270) 846-3700 or utilize our Online Contact Form.