Filing for bankruptcy yields a lot of benefits. It can completely wipe out or eliminate certain debts, stop creditors from garnishing your wages, and could help you keep your assets and properties. It can allow you to live a debt-free life and have a fresh start. However, bankruptcy can damage your credit score which can affect your ability to obtain credit in the future including a new car loan, credit card, or home mortgage.
You cannot buy a house or qualify for a mortgage right after the bankruptcy discharge since most of the lenders will not immediately take a risk on you. However, even after bankruptcy, you can still be eligible to buy a new house. The home-buying process may be time-consuming and challenging, but with patience and effective financial planning, it will most likely become easier than you expect.
Before you apply for a home mortgage, you need to know the loan application requirements and check the status of your post-bankruptcy credit score. The effect of bankruptcy on your credit history will lessen with time. If you file a bankruptcy Chapter 7, it will remain in your credit history for ten years starting from the filing date. On the other hand, if you file a chapter 13, your bankruptcy record will be removed by the credit bureaus after seven years from the filing date, approximately two years after you receive a bankruptcy discharge. It carries less of a stigma since the borrower settles monthly payments to the lender under a repayment plan approved by the court.
In case you do not have enough money to make a down payment, you have the option to apply for a Federal Housing Administration (FHA) loan or VA loan that is backed by the Department of Veteran Affairs. A reliable Phoenix bankruptcy attorney can help explain how a bankruptcy filing would affect your would-be mortgage option.
The Federal Housing Administration (FHA), which is under the management of the Department of Housing and Urban Development (HUD), gives chances to first-time homebuyers with less down payment, lower interest rate, and lower credit score. The role of FHA is not to release a loan, instead, they guarantee the mortgage loans applied by private lenders. To qualify for the loan, you must obtain the required minimum credit score set by the mortgage lender with a corresponding waiting period.
For Chapter 7, you will be considered qualified by the FHA for a home loan two years following the bankruptcy discharge. You need to prove that you have a good credit history for two years without any credit blemishes. If the reasons behind your bankruptcy are inevitable conditions such as natural catastrophe, serious medical issues, or spouse’s death, the waiting time can be reduced by the FHA to twelve months. You need to provide documentation as proof of your ability to pay under the terms of the newly applied mortgage loan.
In Chapter 13, you need to settle your monthly payments as scheduled. You can obtain a mortgage through the FHA Loan Program twelve months after your bankruptcy filing, as long as you can prove your ability to pay your mortgage dues. If you want to buy a new home while you are in the middle of a Chapter 13 bankruptcy case, you need to seek approval from the court before allowing you to apply for new debt.
The Department of Veteran’s Affairs offers a VA mortgage lending program to qualified military veterans and disabled veterans without a required down payment. It requires a waiting period of two years after the Chapter 7 bankruptcy discharge. Within this period, you need to maintain a good credit score because mortgage lenders who are participating in this VA mortgage lending program will set a minimum.
When you decide to buy a house, you may have another option to apply for a conventional home loan. This type of loan is not secured or offered by a government entity. It is guaranteed by two government-sponsored private lenders – Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). They set guidelines for potential borrowers and offer affordable mortgage rates. To apply for conventional loans, you need to fill out an official mortgage application and submit complete documentation of your finances including monthly income, credit history, and current credit score. An experienced Phoenix bankruptcy lawyer can help explain how a filing would eventually affect this paperwork.
You will get a higher chance of home loan approval if you will apply at a proper timing depending on the bankruptcy chapter that you have filed. During the waiting period, Fannie Mae expects you to work on rebuilding your credit.
For Chapter 7, if the reason for your bankruptcy was financial mishandling, you need to wait for 48 months before applying for a new loan, but if your bankruptcy was caused by uncontrollable situations, you may apply after twenty-four months.
On the other hand, a twenty-four-month waiting period is required after the discharge of a bankruptcy Chapter 13. The waiting time might increase to forty-eight months if the court will decide to dismiss your case without a bankruptcy discharge unless it is proven that it has been filed under a mitigating circumstance.
If more than one bankruptcy case were filed for the past seven years, you can become eligible for a home mortgage only after three to five years depending on the circumstances of the case.
Buying a new home after bankruptcy is possible; however, you need to be patient, dedicated, and careful in financial planning and rebuilding credit. It is crucial to monitor your credit report regularly to qualify for a new housing mortgage. For legal help, do not hesitate to contact our credible Phoenix bankruptcy attorneys at Phoenix Fresh Start Bankruptcy Attorneys. Our bankruptcy attorneys will help guide you on how to get a loan and purchase a new home after your bankruptcy.