Buying a House after Bankruptcy? Is It Possible?
Mortgage After Bankruptcy
The good news is that you can buy a house even after filing for bankruptcy. In some cases immediately after dismissal. Except that comes with higher rates.
As you probably know there are 4 main types of bankruptcy cases and is important to distinguish between them:
·1. Chapter 7
, also known as "straight" bankruptcy or "liquidation." Under Chapter 7 a debtor will have to give up property that will be sold to pay creditors. Not all property will be liquidated, just those that exceed certain limits called "exemptions,"
·2. Chapter 11
, known as "reorganization," is mostly for businesses and few individual debtors with very large debts.
·3. Chapter 12
is a special bankruptcy for family farmers and fishermen.
·4. Chapter 13
or "debt adjustment." requires a debtor to file a plan to pay all or part of the debts from current income.
In most cases, people filing bankruptcy will either file under chapter 7 or under chapter 13. Both types may be filed individually or jointly by married couples.
Obtain an order of bankruptcy discharge for a mortgage after bankruptcy
Another important thing to know before applying for a mortgage loan is to obtain an order of bankruptcy discharge. You will be issued a letter signed by the court - keep this letter!!! The letter will include your case number that is special to you.
The bankruptcy discharge will release the debtor, in the case of Chapter 7 and 13, from any liability regarding certain debts. At the same time, bankruptcy will prohibit creditors from trying to collect on debts. This may include credit card debt, medical bills, personal loans, lease and contract obligations, and unpaid lawsuit judgments.
If you file for bankruptcy under Chapter 13 debts might also be discharged. For example, court fees, loans from a personal retirement account, marital debts and debts arising from attempts to pay overdue taxes.
A discharge letter is something lenders will want to see when applying for a mortgage loan after bankruptcy.
Constantly Check Your Credit Report in order to qualify for a mortgage after bankruptcy
As you know, lenders will look at your credit history by consulting your credit report to determine your creditworthiness. Since you can receive one free credit report
per year, ask each of the three major agencies. Equifax, Experian, and TransUnion. Remain informed on your progress towards a better credit score.
After a bankruptcy, you have to prove to lenders that you can repay debts on time while having limited credit options.
You cannot afford to be fussy. Take the offer and make sure that you pay your debts on time every month. Do so without zero failure.
Some of the credit products you will still have access to are:
- Secured credit card, meaning a credit card backed by collateral (usually a dollar amount you deposit of your own funds)
- Installment loans, like personal loans and car loans
- non-traditional credit like 12 months of cell phone bill, car insurance, or cable bill.
Save for your down payment in time for a mortgage after bankruptcy
Applying for a mortgage loan means you have the money for the required down payment and closing costs. Depending on the type of loan, you will need a down payment of 3.5% up to 30% down. Make a plan for saving money for the down payment and stick to it. The goal is to save while building your creditworthiness. You may be able to find a lender that allows you to include some of the costs into the loan. Otherwise, you have to put money aside for closing costs too.
Waiting Periods for a mortgage after bankruptcy
After you start rebuilding your credit worthiness you just have to be patient. Each major loan type has its own waiting period guideline after a bankruptcy. None of these examples below includes a Foreclosure, Short Sale or Deed-in-lieu of Foreclosure. These guidelines are for Bankruptcy alone with no other layers of risk:
- FHA loans: 2 years, or even less in some special cases - with 3.4% down
- VA home loans: 2 years - with ZERO 0% down
- Conventional mortgages: 4 years depending on the reason for bankruptcy. With as low as 3% down
- USDA home loans: 3 Years; under the same conditions as the conventional loan
- Non-conforming Loan Products: No Seasoning. You must complete the Bankruptcy prior to the application date and all other credit requirements apply. Minimum credit score of 640 allowed coupled with a 15% down payment. Also requires 6 months PITI of reserves. The rate will run approximately 4% higher than a traditional conforming loan like one of the above. However, this particular product does not have mortgage insurance.
Other Possible Options to Purchase a House
Use services like:
Using such products will loosen up the qualification criteria for buying a property. This is in comparison with the ones imposed by the common lenders. And will reduce even more the waiting period after you filed for bankruptcy.
If you are in the process of rebuilding your credit you can contact Casey Moseman. She is a mortgage loan officer that can advise you on the best mortgage loan for you.