How Long After Chapter 7 Can I Buy a House? Get the Answers Here
Declaring Chapter 7 bankruptcy can feel overwhelming, but it’s an excellent opportunity to eliminate a majority of your debts. One concern for individuals after going through bankruptcy, is “How soon can I buy a house after Chapter 7?”
Understanding the loan waiting period and other criteria for buying a house after Chapter 7 can help you to make solid plans for homeownership while alleviating a lot of stress. In this guide we’ll discuss typical “waiting periods” for each type of mortgage loan, eligibility factors, and the best way to increase your odds of owning a home after filing bankruptcy.
Understanding Chapter 7 Bankruptcy
Also known as a “liquidation bankruptcy,” Chapter 7 is a process of selling off assets to repay your creditors in full or part. This typically takes four to six months, but can be longer depending on the circumstances.
At the end of the process, all eligible debts are eliminated. While Chapter 7 bankruptcy offers debt relief, it negatively affects your credit score and overall finances. A Chapter 7 bankruptcy stays on your credit history for a decade making it harder (but not impossible) to get credit such as a home loan during that time. However, after Chapter 7 discharge can I buy a house? Yes, but timing and preparation are key.
Waiting Periods for Buying a House After Chapter 7
The waiting periods for buying a house after Chapter 7 bankruptcy varies depending on the type of mortgage loan you’re interested in. How long after Chapter 7 to buy a house will depend on waiting periods for different loan types:
Conventional Loans
Traditional loans (i.e., loans that aren’t backed by the government) often come with a four year waiting period following a Chapter 7 bankruptcy discharge. However, if you can prove that you were experiencing extenuating circumstances (i.e., major illness, unexpected unemployment, etc.) at the time of filing, you may be able to shorten this period by one to two years.
Meeting the lenders score criteria, which normally begin at 620, and establishing your credit, are prerequisites for qualifying for a traditional loan.
FHA Loans
The Federal Housing Administration offers loans to people buying homes for the first time. These loans are incredibly accessible (even if you have a credit score of 500) and usually require a low down payment, between 3.5%, and 10%. Keep in mind that you’ll most likely have to wait for two years after your discharge before you can apply for a FHA loan.
VA Loans
Veterans, active duty service members, along with some National Guard and Reserve members are eligible for loans from the Department of Veterans Affairs (VA). The time frame for obtaining a VA loan after going through Chapter 7 bankruptcy is generally around two years.
The best part about VA loans is they don’t require a down payment or have credit score requirements. Although there isn’t a set credit score for VA loans, many lenders prefer a credit score of 620 or higher.
USDA Loans
USDA loans are for buyers living in or hoping to move to rural areas. After filing for Chapter 7 bankruptcy you’ll need to wait for at least three years to apply for a USDA loan. Qualifications for this loan include:
- Having an income within 115% of the median in your area
- A credit score of 640
- Purchasing a home in a qualifying area
Factors Influencing Loan Approval Post-Bankruptcy
Several factors influence your ability to obtain a mortgage after Chapter 7 bankruptcy. Understanding these factors and working to improve them can significantly enhance your chances of loan approval.
Credit Score
You’ll need an average to above average credit score to qualify for most mortgage loans post bankruptcy. Can I buy a house after Chapter 7? After filing for Chapter 7 bankruptcy, your score might drop. However, there are ways to improve it. Here are a few suggestions:
- Make consistent and on time payments
- Be judicious about what you buy with your credit card and pay your balance off monthly
- Consider credit builder loans as they can increase your credit scores and show positive payment history
Employment and Income Stability
Demonstrating that you’re employed and earn a consistent income can greatly improve your chances of loan approval – Which is why it’s important to refrain from “job hopping.” Ensure you gather documents like pay stub, tax returns, and employment verification letters to confirm the stability of your income.
Down Payment
The more cash you’re able to put down, the less risky you’ll be to potential lenders. As such, saving more money for a down payment can lead to benefits such as better loan conditions, lower interest rates, and higher approval odds.
Steps to Improve Your Chances of Buying a House
After going through bankruptcy getting approved for a home can be challenging. However, being exceptionally prepared can increase your chances, by a lot. Below are some tips to help you get ready for your initial mortgage application following bankruptcy:
Take Steps to Rebuild Your Credit
Your credit score plays a major role in deciding whether or not you’ll be able to purchase a home with a loan. In addition to paying your bills on time, consider these tips:
- Regularly check your credit for mistakes that could impact your scores and important updates.
- Stay away from new debts and focus on reducing your current liabilities.
- Maintain a favorable credit usage ratio (10% to 30%).
Manage Your Finances Responsibly
Managing your finances is crucial for boosting your financial standing. Here are some pointers to assist you in keeping your money in check:
- Set your budget and stick to it.
- Build an emergency fund that can last you three to six months without the need to take on additional debts.
Seek Professional Debt Relief Advice
Navigating homeownership after filing bankruptcy can be complicated, which is why it’s recommended that you seek the help of a proven financial professional to ensure you take the best steps towards your goals. Some of the best financial experts to help you get back on track include:
- Financial Advisors
- Credit Counselors
- Bankruptcy Attorneys
Contact The Attorney Debt Fighters
Chapter 7 isn’t the end of your finances – it’s the start. Buying a home after filing bankruptcy can be complex, but you’ll be well on your way if you understand loan waiting periods, take steps to improve your credit, and maintain a steady source of income to save for your down payment.
The debt attorneys at Ziegler Diamond Law are here to help you step-by-step through the debt relief process to ensure you have the best chances at being approved for your next mortgage.
Contact us today for your free consultation with a Chapter 7 bankruptcy attorney in Florida today.
