Can You Buy a Home after Bankruptcy?


Maybe you have long endured the crumbling weight of your bills and you look forward to finding some relief, and so you filed for bankruptcy. Although bankruptcy relief can help you either clean your debts or create an affordable payment plan, there are disadvantages.

A bankruptcy lasts up to ten years in your credit report and can impact your ability to obtain good credit interest rates. You should also be aware that possession of a home is not out of the question, although it may be difficult. Some rules must be considered in determining how to buy a house after bankruptcy.

Contact our experienced bankruptcy attorney in Edmond, OK, today at Chris Mudd & Associates if you have questions on the process for home buying after a bankruptcy.

Buying a Home after Bankruptcy

The timer starts when the action is discharged with a Chapter 7 bankruptcy. Since then, you are typically waiting for conventional loans for four years and waiting two years for either FHA or VA funding. (The FHA's short-term' Back to Work' program, after bankruptcy and foreclosure, gives qualified borrowers the opportunity to move even faster.)

The bankruptcies of Chapter 13 may be a bit different. Two years after a Chapter 13 discharge, you might be able to land a conventional loan. Even more lenient are the FHA and VA loans. The borrowers may only have one year to go from the filing of a Chapter 13 bankruptcy for this government-backed loan. They are generally asked to pay on time and to get court permission to take up new debts for at least 12 consecutive months.

Mortgage Guideline

Many mortgage programs with government support are designed to support future householders. The following programs include:

Federal Housing Authority (FHA) – In collaboration with Fannie Mae and Freddie Mac, this branch of government helps people with low income to find a place they can afford.

The Federal National Home Loan Mortgage Corporation (referred to as Fannie Mae) - The standard 20% loan for Fannie Mae does not necessarily make it more affordable. You may also be able to finance your home loan for some or all your closing expenses as long as you meet the stringent income guidelines of Fannie Mae.

The Federal Home Loan Mortgage Corporation (referred to as Freddie Mac) – Freddie Mac uses income guidelines too, but the decisions are based more on your credit than on your revenue.

The Veterans Administration (VA) – This program is available to support those with an honorable discharge as veterans who complete their service.


Credit Rebuild

Your credit score will probably be at its lowest right after your discharge. Your dream of homeownership is best realized by rebuilding your credit.

Buying After Foreclosure

Consumers losing their homes due to foreclosure may need to wait much longer. Alternatives for foreclosure (short sales and forfeiture deeds) and even changes to the loans may also result in periods of waiting.

You usually have to wait for conventional loans for seven years from the foreclosure date. Three years after borrowers who can demonstrate the forfeiture was the result of conditions truly beyond their control can qualify. However, at least 10% will also have to be paid down.

After a short sale or a deed in the field, it usually takes four years to wait unless the circumstances are extenuating. Typically, you can take an FHA loan when you are out of a foreclosure or short sale for three years. After a foreclosure, VA lenders can grant funding on a two-year mark. Veterans and service members may not have to wait after a short sale depending on the lender.

While government-supported loans offer greater flexibility in terms of foreclosure, one caveat is noteworthy. You might be faced with an automatic three-year wait before you qualify to one of these loans (FHA / VA / USDA). Much depends if the default winds up reported in a federal debt-tracking database.

To clarify your confusion on buying a home after bankruptcy, contact our bankruptcy attorney in Edmond, OK.

** Disclaimer: This blog post does not constitute legal advice, nor does it create a client-attorney relationship.