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Home Ownership is Possible, Even After Bankruptcy

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If you are facing a large amount of credit card or medical debt and are considering filing for bankruptcy, you may be concerned about the long-term implications a bankruptcy will have on your credit. If you’ve long held a dream to own a home, you may wonder if you’ll be eligible for a mortgage with a bankruptcy on your credit. Fortunately, home ownership is not outside the realm of possibility for those who have filed for bankruptcy, provided you take certain steps to ensure that you’re a good candidate. Read on to learn more about how obtaining a mortgage is affected by a bankruptcy.

Fannie Mae-governed loans come with a waiting period

Loans governed by the Fannie Mae guidelines—considered to be “conventional” loans—will require that potential borrowers who filed for bankruptcy under Chapter 7 wait four years from the date that the bankruptcy is discharged or dismissed before those individuals will be eligible for a mortgage. For debtors who filed under Chapter 13, that wait will be two years from the date of discharge, or four years from the date of dismissal. This means that, if you failed to meet the payment requirements set by the bankruptcy court, such as by failing to make all payments, and your case was dismissed, you will have a longer wait until you are eligible.

FHA loans offer a shorter waiting period, should you qualify

Loans insured by the Federal Housing Authority (FHA) are designed for potential homebuyers with less-than-excellent credit, and can provide a faster avenue to home ownership than traditional loans. Applicants must meet certain criteria to receive an FHA loan, but if they qualify, then the waiting period for a Chapter 7 debtor is two years from the date of discharge, and if they are a Chapter 13 debtor, then that wait will be one year from when the debtor began making their court-ordered payments toward the debt. Chapter 13 debtors must also have a spotless record of making payments on time, and must obtain written consent from the bankruptcy judge prior to being permitted to apply for a home loan.

Exceptions exist for certain types of bankruptcies

While these exceptions are not often granted, both loans governed by FHA rules and those considered conventional mortgages allow certain exceptions to the required post-bankruptcy waiting period. If the bankruptcy was filed due to reasons outside of the potential borrower’s control, such as debts accrued after a natural disaster, after the death of a spouse, or after a serious illness, then the waiting period to be permitted to apply for a mortgage could be made as short as one year.

If you are facing mounting debt and would like guidance on what legal steps would be best for you to take to escape the debt cycle, contact experienced Bowling Green bankruptcy and consumer law attorney Lanna Kilgore for a consultation, at 270-846-3700.

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