Does your credit history include a bankruptcy on your record? If this is the case, it may seem like you’ll never be able to get back on your feet financially. In reality, bankruptcy isn’t a permanent stain on your credit report. If you know what to do, you may even be able to buy a new home after bankruptcy sooner than you think.
In this article, our bankruptcy attorney from The Santos Law Offices, PA, will explain how long it takes to apply for a new home loan after you’ve filed and how you might improve your chances of getting one.
How Soon After Filing Bankruptcy Can I Apply for a Home Loan?
Before you can obtain a loan, you must wait until a judge discharges your bankruptcy – or dismisses it if it does not meet the criteria. But how long do you have to wait? The answer depends upon the type of bankruptcy on your credit report and the type of loan you seek. In this article, we’ll discuss waiting periods for Chapter 7 and Chapter 13 bankruptcies.
Chapter 7 Bankruptcy Timeline
Remember that the waiting periods after a Chapter 7 bankruptcy don’t start until a bankruptcy court discharges or dismisses your bankruptcy. When you file for Chapter 7, the court will discharge all your qualifying debts. A Chapter 7 bankruptcy stays on credit reports for 10 years.
The following are the minimum waiting periods for a mortgage after Chapter 7:
- Federal Housing Administration (FHA) Loan: Two years after your discharge. You must demonstrate a positive credit history with no significant credit blemishes during these two years.
- Department of Veterans Affairs (VA) Loan: Two years after your discharge.
- United States Department of Agriculture (USDA) Loan: Three years after your discharge.
- Conventional Loan (Fannie Mae or Freddie Mac): A four-year waiting period is required, beginning with the date of discharge or dismissal of the bankruptcy action. A two-year waiting period is allowed if extenuating circumstances can be documented and measured from the dismissal or discharge date of the bankruptcy.
Please keep in mind that the waiting periods listed above are the bare minimums of each loan program. Some lenders will make you wait for a more extended period.
Chapter 13 Bankruptcy Timeline
Instead of discharging all debt, Chapter 13 bankruptcy requires a 3 to 5-year repayment plan. The bankruptcy court then discharges any remaining dischargeable debts. Chapter 13 bankruptcy stays on credit reports for seven years.
The following are the minimum waiting periods for a mortgage after Chapter 13:
- FHA Loan: If you have made your Chapter 13 payments on time and can demonstrate that you can afford the mortgage payments, FHA will guarantee a mortgage loan 12 months after you file for Chapter 13 bankruptcy if you can afford the mortgage payments. If you intend to purchase a home during a Chapter 13 bankruptcy, you will need the court’s permission to incur additional debt.
- VA Loan: If you have made at least 12 months of payments toward your Chapter 13 repayment plan, you may be eligible if the trustee or judge overseeing your bankruptcy approves the application.
- USDA Loan: You are eligible for financing while in your Chapter 13 bankruptcy if you have at least 12 months of on-time payments, have the bankruptcy trustee’s permission and your overall credit is acceptable for USDA loan financing.
- Fannie Mae or Freddie Mac Loan: Two years after your discharge. If the court dismisses your case without a discharge, the waiting period will increase to four years.
Tips to Help You Prepare for a New Home Loan
While you’re waiting to apply for a new home loan, here are some tips to help you stand the best chance of qualifying.
Practice Good Credit Habits
Building excellent credit after bankruptcy requires developing good financial habits. If you follow these guidelines, your credit will be able to recover from any setback.
- Make on-time payments on all debts.
- Keep track of your bills.
- Don’t carry a balance on your credit card.
- Put money aside for emergencies.
Apply for a Secured Credit Card
It may be challenging to obtain new loans or credit cards following a bankruptcy. However, having open credit accounts aids in the rebuilding of your credit. So, how do you go about it?
Secured credit cards are an excellent place to start. To get a secured credit card, you don’t need good credit. Instead, you qualify by putting down a deposit that the creditor can keep if you stop paying on the account.
If you have no credit history or bad credit, a credit-builder loan can help you build a track record of responsible financial behavior without using a credit card.
In the traditional sense, a credit-builder loan isn’t a loan. When you apply, a lender places the loan balance you choose into a savings account. You’ll make fixed monthly payments toward it, and at the end of the loan term, the lender will repay you the total balance (plus any interest you paid, if applicable). That means you’re building credit while also saving money.
Monitor Your Credit
Keeping track of your credit information is essential for getting back on your feet after a bankruptcy. After you’ve filed, you’ll want to keep an eye on your credit to make sure the accounts that have been discharged are reported correctly.
Credit monitoring can also help you catch errors and early signs of identity theft before they get out of hand, such as loan applications made in your name.
There is Life After Bankruptcy
It takes time to build back good credit. After a bankruptcy, avoiding loans and credit cards may seem like the best option, but if you don’t have any open accounts, it can be challenging to add new, positive information to your credit file.
Rather than vowing never to use credit again, focus on using credit cards and loans sparingly, making all your payments on time, and monitoring your credit information regularly. These steps, taken together, can help you reestablish good credit within a few years of filing for bankruptcy and put you in good financial shape to be approved for a new home loan.
The Santos Law Offices, PA – Your Bankruptcy Attorney Near Me
At The Santos Law Offices, PA, we understand the challenges you might experience if you want to qualify for a new home loan after your bankruptcy filing. Our mission is to help you move on from your financial troubles. A new home is attainable within one to two years after bankruptcy if you take some essential steps and seek legal guidance during the bankruptcy journey.
Talk to our bankruptcy lawyer about the issues you face in the home buying process to learn about your options. If you are searching online for a “bankruptcy attorney near me” in Florida, call us at The Santos Law Offices, PA, at (305) 417-4111, or fill out our online form for a free consultation.
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