The Challenges of Buying a Home After a Bankruptcy
In 2011, there were 240,151 bankruptcy filings in the state of California alone. Therefore, you should not feel alone or ashamed to have to file for bankruptcy protection. However, it could have an impact on your plans to become a homeowner in the near future. Contact a bankruptcy attorney about buying a home after a bankruptcy.
When Can I Buy a Home After a Chapter 7 Bankruptcy?
If you are looking to buy a home through an FHA, USDA or VA loan, you may have to wait for up to two years after filing for bankruptcy to get approved for a mortgage. However, those who have extenuating circumstances may be approved in as little as a year after they have filed. If you want to get a conventional loan after a Chapter 7 filing, it may take anywhere from two to four years before a lender will work with you.
When Can I Buy a Home After a Chapter 13 Bankruptcy?
In a Chapter 13 bankruptcy, you repay your debts based on a plan that you propose that is approved by creditors. Payments are made over a period of three or five years, but you can get a mortgage sooner than that. Generally, you have to wait a year after filing to get a government loan. That may increase to two years or longer if you are looking for a conventional mortgage.
Why Are the Standards Tougher in Chapter 7 Cases?
In a Chapter 7 bankruptcy proceeding, you may get away with paying creditors less than what you owe. In some cases, you won’t pay creditors anything if you have few assets to liquidate. Since you are paying creditors back in a reorganization bankruptcy, lenders may feel better about your ability to handle debt going forward. A bankruptcy attorney may be able to answer any further questions that you may have about securing a home loan after filing for bankruptcy.
Rebuilding Your Credit
Generally speaking, your ability to get a loan will depend largely on your credit score as well as your credit history since filing for bankruptcy. In a Chapter 7 case, you can start rebuilding your credit in a matter of weeks or months. This is because most liquidation cases are resolved rather quickly.
However, there are steps that you can take to rebuild credit in a Chapter 13 case, such as getting approved for a car loan or a credit card during the repayment period. For some, it may be easier to get a mortgage after a Chapter 13 filing because you can retain property. In a Chapter 7 proceeding, most items of value are sold, which may make it harder for a lender to take a chance on you.
In most cases, you will need a credit score of at least 640 to qualify for an FHA or USDA loan with minimum down payment requirements. If you have a score of less than 640, you may need to make a larger down payment or otherwise subject yourself to tougher loan standards.
Lenders Can Add Their Own Requirements
It is important to know that lenders can add their own requirements on top of any standards imposed by a government agency. For instance, a lender can say that it won’t accept FHA loan applications from those with a credit score below 670. It could also require a down payment of 10 percent even if the FHA says a person qualifies for a down payment of 3.5 percent. Finally, a lender could choose to not allow a person to borrow funds for a home loan for three years after filing for bankruptcy regardless of which type it was.
If you are curious about how a bankruptcy may impact your ability to become a homeowner in the future, contact the bankruptcy attorneys at Neuner & Ventura LLP. Our phone number is (856) 596-2828, and our office is located at the corner of corner of Ardsley Drive and Route 73.