Can I Buy a House After I File for Bankruptcy?

People who file for bankruptcy often erroneously criticize themselves for that decision, and believe the stigma that they’ll never be able to buy a house or rent a car again. Many also assume that they’ll never qualify for loans or mortgages, either.

However, this just isn’t the case – and if you’re one of the 800,000 Americans who file for bankruptcy each year, rest assured that it’s not impossible to rebuild your life after bankruptcy. At The Buchalter Law Group, our Brevard County bankruptcy lawyers can help you understand what bankruptcy means, and when you’ll be clear to make major purchases like a house again.

Purchasing a Home After Bankruptcy

Because very few people have enough cash to purchase a home outright, mortgages are the most common way of financing a home. Of course, a mortgage is a form of fixed-rate loan, and because it’s attached to a significantly high-value property, banks take mortgage applications even more seriously than personal loans.

If you recently went bankrupt, it may be at least 2 full years before you can even apply for a mortgage. You may want to wait even longer in some cases, as you may get better terms with a longer history of good credit. However, this depends greatly on what type of bankruptcy you filed, as well as the size and scope of the mortgage in question.

Here are a few of the steps you’ll need to take before you can purchase a home:

  • Formalize your bankruptcy discharge. A “bankruptcy discharge” refers to the bankruptcy court order that finalizes the proceedings. Any and all bankruptcy proceedings need to conclude before any mortgage lenders will even allow you to apply, as it formally releases you from your liability to creditors.
  • Work on rebuilding your credit. As soon as the bankruptcy process is over, you need to get to work on rebuilding your broken credit score. If you want to purchase a house within the next few years, you’ll need to ensure that there are zero delinquencies on any account. Start by opening a credit line or two, and paying off all expenses as you go for the first 12 months. Be very careful to only charge what you can actually afford.
  • Check all your credit reports for errors. Credit report mistakes are startlingly common post-bankruptcy. Any errors or transgressions that aren’t your fault can still affect your credit score, or raise red flags for prospective lenders. Get regular copies of your credit reports and be proactive about fixing mistakes through the major credit bureaus. Credit Karma is a great free resource for tracking credit changes.
  • Send a letter detailing your reasons for bankruptcy. For the vast majority of Americans, bankruptcy is caused by a serious emergency, like a major illness or the death of an income-generating spouse. These extenuating circumstances will make it more likely for a lender to overlook your bankruptcy and let you buy a house. Document your reasons for bankruptcy clearly, and send it to the lender when you apply.

Does Bankruptcy Type Affect Buying a Home?

Because filing for Chapter 13 bankruptcy is really a form of debt management plan, most mortgage lenders – from the Federal Housing Administration down to conventional lenders – will allow you to apply sooner than Chapter 7 filers.

For an FHA loan, you can likely apply within a year for Chapter 13, and within two years for Chapter 7. However, a conventional lender such as Fannie Mae or Freddie Mac will most likely double that probation period, for both types of filers. Regardless of your bankruptcy type, you will also need to continuously be rebuilding your credit during the probation period. All lenders vary on the time frame they require to obtain a mortgage loan post-bankruptcy. Don’t feel discouraged if the first lender denies you for a mortgage loan post-bankruptcy, as a different lender may approve you.

Do you have additional questions about buying a home after bankruptcy? Contact us today at (321) 320-6088 for a free consultation with our skilled Brevard County bankruptcy lawyers.

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