Can You Buy A House After Bankruptcy
Priority 1 Lending
Priority 1 Lending
Published on May 26, 2023
Can You Buy A House After Bankruptcy

Can You Buy A House After Bankruptcy

Getting a home after bankruptcy might feel like a monumental task, but it’s not an impossible dream. Yes, the path can be rocky, but with time and a well-structured plan, you can still navigate your way to homeownership.

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Can You Purchase a Home Following Bankruptcy? The timing for buying a home after bankruptcy is mostly determined by the bankruptcy type you declared. While you can’t buy property during bankruptcy, you can kick-start the process once you’ve served the required waiting time.

How Soon Can You Purchase a Home After Chapter 7 Bankruptcy? Often, Chapter 7 is the bankruptcy type that springs to mind for most people. This form of bankruptcy can hit your credit hard, but it allows you to wipe the slate clean when it comes to your debts.

After Chapter 7 bankruptcy, you’ll have to wait for a certain period before you’re eligible for a mortgage. For conventional loans via entities like Fannie Mae or Freddie Mac, you’ll have to wait for 4 years after your bankruptcy has been discharged or dismissed.

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For a USDA loan, you’d need to wait 3 years post-discharge or dismissal. On the other hand, the FHA and VA require a two-year gap from the discharge or dismissal date before you can apply for a loan.

When Can You Purchase a Home After Chapter 13 Bankruptcy? Chapter 13 bankruptcy involves a debt repayment plan that enables you to keep your property while paying off your debts over a period, usually three to five years.

Mortgage lenders are generally more flexible after a Chapter 13 bankruptcy, but it remains a major financial event. For a conventional loan post a Chapter 13 bankruptcy, the waiting period varies based on whether the bankruptcy was discharged or dismissed.

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When Can You Purchase a Home After Chapter 11 Bankruptcy? Chapter 11 bankruptcy is typically associated with businesses. But if you’re self-employed and your business has gone through Chapter 11, it could impact your ability to get a mortgage.

With a conventional loan, you’ll have to wait more than 4 years post-discharge or dismissal of the bankruptcy before you can apply. FHA, USDA, and VA loans require a 2-year gap between the discharge or dismissal date and the application date.

When Can You Purchase a Home After Chapter 12 Bankruptcy? If you’re a fisherman or a farmer, you might be familiar with Chapter 12 bankruptcy. Similar to Chapter 13 bankruptcy, it involves debt restructuring.

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The rules for securing a conventional loan are the same as those for Chapter 13 bankruptcy, with the bankruptcy having been filed more than 4 years ago and discharged at least 2 years ago.

How Can You Improve Your Home Buying Chances After Bankruptcy? Once the mandatory waiting period is up, you’re eligible to buy a home after bankruptcy. But you can do certain things to boost your chances of getting a mortgage.

  1. Monitor Your Credit Report: Ensure that your bankruptcy has been cleared from your credit report. A Chapter 7 bankruptcy should be cleared after 7 years, and a Chapter 13 bankruptcy after 10 years.
  2. Boost Your Credit: You’ll need to build your credit back up by opening new credit accounts responsibly.
  3. Pay Off Your Debt: Focus on clearing any outstanding debt you have post-bankruptcy. This can improve your credit score and debt-to-income (DTI) ratio, increasing your chances of getting a mortgage.
  4. Make Payments On Time: Regular, on-time payments can boost your credit score significantly.
  5. Write a Bankruptcy Explanation Letter: If your bankruptcy is still on your credit report, this letter can help your lender understand the reasons behind your bankruptcy.
  6. Get Preapproved: Mortgage preapproval can enhance your chances of buying a home after bankruptcy. Your lender will need several documents to preapprove you for a mortgage, including:
  • Social Security number
  • W-2 forms for the last 2 years
  • At least two pay stubs
  • Bank statements and statements for any savings or investment accounts
  • 2 years of tax returns
  • Documents about your bankruptcy
  • Your bankruptcy explanation letter
  • A profit and loss statement if you’re self-employed

In Conclusion: You Can Purchase a Home After Bankruptcy Bankruptcy doesn’t have to be a full stop on your homeownership dreams. You can still achieve it, but you’ll need to stick to certain rules depending on the type of loan you’re going for. If you’re ready to buy a home after bankruptcy, start your application for approval with Priority 1 Lending now.

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