5 min read Apr 09, 2024

Can You Buy a House After Bankruptcy?

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Edited By

Carol Coutinho

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Editor
Edited By

Carol Coutinho

Editor, Houzeo
About

Carol C. is a versatile editor, expertly refining real estate content with precision and creativity. When not exploring market trends, she is immersed in the enthralling world of the theatre.

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Bankruptcy is a difficult and stressful situation to go through, and it can have long-lasting effects on your credit score and financial standing. One of the biggest questions many people have after filing for bankruptcy is whether or not they can still buy a house.

In this blog post, we’ll explore the answer to this question and provide information on how to navigate the home-buying process after bankruptcy.

Understanding Bankruptcy

Before we can answer the question of whether or not you can buy a house after bankruptcy, it’s important to have a basic understanding of what bankruptcy is and how it works.

What is Bankruptcy?

Bankruptcy is a legal process that allows individuals or businesses to get relief from their debts and start fresh. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” is the most common type of bankruptcy for individuals. It involves selling off non-exempt assets to pay off as much debt as possible, and any remaining debt is discharged.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” involves creating a repayment plan that allows you to pay off your debts over a period of three to five years.

How Bankruptcy Affects Your Ability to Buy a House

Now that we have a basic understanding of bankruptcy, let’s explore how it affects your ability to buy a house.

Can You Buy a House After Bankruptcy?

The short answer is yes, you can buy a house after bankruptcy. However, the process may be more difficult and you may need to wait a certain amount of time before you’re eligible for a mortgage.

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How Long After Bankruptcy Can You Buy a House?

The amount of time you’ll need to wait before buying a house after bankruptcy depends on the type of bankruptcy you filed and the type of loan you’re applying for.

Buying a House After Chapter 7 Bankruptcy

If you filed for Chapter 7 bankruptcy, you’ll typically need to wait at least two years before you can apply for a conventional mortgage. However, you may be eligible for an FHA loan after one year.

Buying a House After Chapter 13 Bankruptcy

If you filed for Chapter 13 bankruptcy, you may be able to apply for a mortgage as soon as you complete your repayment plan. Which usually takes three to five years.

How Does Bankruptcy Affect Your Credit Score?

Bankruptcy can have a significant impact on your credit score. It will likely take some time to rebuild your credit after filing for bankruptcy. However, it’s still possible to qualify for a mortgage with a lower credit score. As long as you meet other eligibility requirements.

Tips for Buying a House After Bankruptcy

If you’re interested in buying a house after bankruptcy, there are a few tips that can help you navigate the process.

Rebuild Your Credit

One of the most important things you can do after filing for bankruptcy is to start rebuilding your credit. This can be done by paying all of your bills on time, keeping your credit card balances low, and monitoring your credit report for errors.

Save for a Down Payment

Saving for a down payment can help you qualify for a mortgage and may also help you get a better interest rate. Aim to save at least 20% of the purchase price of the home, although some mortgage lenders may accept a lower down payment.

Work with a Mortgage Professional

Working with a mortgage professional who has experience working with clients who have filed for bankruptcy can be helpful. They can help you understand your options and guide you through the home-buying process.

Consider an FHA Loan

If you’re struggling to qualify for a conventional mortgage after bankruptcy, an FHA loan may be a good option. These loans are backed by the Federal Housing Administration. They are designed to help low- and moderate-income borrowers with less-than-perfect credit qualify for a mortgage.

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Final Word

In conclusion, filing for bankruptcy doesn’t necessarily mean that you can’t buy a house. While the process may be more difficult and require more time and effort. It’s still possible to become a homeowner after bankruptcy.

f you’re considering buying a house after bankruptcy, it’s important to understand the different types of bankruptcy. How they affect your credit score and the waiting periods for different types of loans.

Additionally, working with a mortgage professional and focusing on rebuilding your credit. It can help you achieve your goal of owning a home.

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Where do you want to live?

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FAQs

How long do you have to wait to get a FHA loan after bankruptcy?

The waiting period for a new FHA loan starts after the discharge of your bankruptcy, typically after two years. A discharge is a court order releasing you from included debts.

Does bankruptcy affect home ownership?

Filing for Chapter 7 bankruptcy eliminates all your financial debt, including the mortgage, but may lead to losing your house. On the other hand, Chapter 13 bankruptcy reorganizes debt and allows catching up on payments through a plan.

How much does credit score go up after Chapter 7 falls off?

After the removal of bankruptcy from your credit report, the increase in your credit score depends on various factors, typically resulting in a boost of 30 to 100 points.

Can I refinance after bankruptcy?

Yes, you can refinance after bankruptcy once you have repaired your credit score.

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