Most people who come to our office are often conflicted about how bankruptcy will impact them in the future. Most people assume that filing for bankruptcy means that they won’t be able to buy a home in the future. Many people are shocked to learn that bankruptcy can actually help them buy a home. Most of the time, people are not prevented from purchasing homes just because of their bankruptcy filing.
To determine if a person is eligible to buy a home after filing for bankruptcy, they will need to look at a few factors:
- Their credit report
- The length of time it has been after their bankruptcy filing
- Which chapter of bankruptcy they are filing
There are two chapters of bankruptcy that individuals can file. Chapter 7 and Chapter 13. Below we will briefly discuss each chapter:
Chapter 7 Bankruptcy:
Chapter 7 bankruptcy is the fastest bankruptcy. It usually takes about four months to complete. To qualify for Chapter 7 bankruptcy, individuals must pass a means test that looks at their income and assets. In a Chapter 7 bankruptcy, individuals can wipe out their unsecured debt as long as they qualify.
Chapter 13 Bankruptcy:
In a Chapter 13 bankruptcy, individual enters into a 3-5 year repayment plan to repay a portion of their debts. Typically, this chapter is for people who have higher income and more assets with equity.
Qualifying for a Mortgage After Filing for Bankruptcy
When individuals start their home search, they are often faced with the task of trying to determine which mortgage they will qualify for. FHA loans, VA loans, and USDA loans are typically the easiest loans to get after filing for bankruptcy. Unfortunately, conventional loans can take a little more time after filing.
Typically, there is a waiting period to qualify for all of these loans which we will go through below:
FHA Loan
The FHA loan is for first-time homebuyers. The FHA has set out rules for when people can qualify for such loans after filing for bankruptcy.
- Chapter 7: FHA has a two-year waiting period. The FHA will not extend a loan to anyone who has filed within the last two years.
- Chapter 13: FHA will extend a loan before a Chapter 13 discharge. However, debtors must be up to date in their Chapter 13 plan. Typically, the debtor’s in a Chapter 13 plan must get court approval.
VA Loan
Va loans are eligible for veterans and spouses of veterans who have been deceased. VA loans are similar to FHA loan waiting periods.
- Chapter 7: VA loans have a two-year waiting period before extending a loan.
- Chapter 13: VA loans will extend to individuals before their Chapter 13 bankruptcy discharge as long as they are current on their Chapter 13 repayment plans.
USDA Loan
USDA loans designate these loans for individuals with lower income. USDA loans have different waiting periods after filing for bankruptcy than FHA and VA loans.
- Chapter 7: USDA loans have a three-year waiting period before extending a loan.
- Chapter 13: USDA loans have a one-year period after the court enters a discharge. This means that individuals must wait one year until after their Chapter 13 discharge to qualify for this type of loan.
Conventional Loans
Conventional loans are a bit harder to get after filing for bankruptcy. Unfortunately, conventional loans offer longer waiting periods than the loans mentioned above. If there are extenuating circumstances these loans may be extended two years after a Chapter 7 discharge. However, the typical waiting time after filing for Chapter 7 is four years.
For a Chapter 13 bankruptcy, the waiting time is two years or 4 years if the individual’s case was dismissed.
Can I Rebuild My Credit Score to Qualify for a Mortgage loan after filing for Bankruptcy in 2021?
Most individuals assume that when they file for bankruptcy, their credit score will take a huge hit and they won’t qualify for a mortgage. Many times, individuals are surprised to learn that individuals who file for bankruptcy can have perfect credit scores within two years. It is important that individual’s who file for bankruptcy take proper steps to rebuild their credit scores. This means showing a good history of on-time monthly payments. Every type of loan has its own credit score that they use to determine if someone is eligible. This credit score is also important because it dictates the interest rate that will need to be paid. For example, FHA mortgages require a minimum credit score of 500 whereas, VA loans require a minimum credit score of 620.
Can I get a mortgage loan after filing for bankruptcy?
In conclusion, individuals seeking to get out of debt can qualify for a mortgage loan after filing for bankruptcy. Bankruptcy can help eliminate debt and allow a person looking to buy a home to start fresh. It is important to keep in mind that individuals with judgments, low credit scores, and high debt still won’t qualify for a mortgage. Filing for bankruptcy can be a first step in getting out of debt so that an individual can qualify for a mortgage in the future.
. If you are considering filing for bankruptcy and have questions, Karra L. Kingston has been helping individuals get out of debt and file for bankruptcy for many years. Give us a call at (973)-979-9078