You may have heard the myth that you cannot own anything for the entire seven years following bankruptcy. This is not true. In fact, it is wise to work toward rebuilding your credit by using credit responsibly. But how soon can you enter into a loan as big as a mortgage agreement after bankruptcy?
Chapter 7 Bankruptcy Limits on Mortgage
The first step to being able to buy a house after bankruptcy is to wait for a court to dismiss or discharge your bankruptcy. With chapter 7, your qualifying debts are cleared, and subsequently, your credit takes a huge hit.
Once the court dismisses your bankruptcy, you must wait 4 years before entering into a conventional mortgage loan. Government-backed loans are more lenient, with a waiting period of 3 years. And for an FHA loan, you only have to wait 2 years after a court has discharged your bankruptcy.
During this waiting period, you should work to rebuild your credit. Take out a secure credit card and pay off your balance completely each month. Never go a day late on rent or electric company payments. Build a history of consistency and responsibility with your credit.
Chapter 13 Bankruptcy and Mortgage Rules
Chapter 13 bankruptcy is a little different in that a court may rule that some money is to be paid back with a strict schedule. Because the debt isn’t cleared completely, your credit isn’t affected as severely. But there are still waiting periods associated with taking out a mortgage loan.
You must wait 4 years if the court dismisses your bankruptcy. If you choose a USDA loan, the waiting period is 1 year after discharge or dismissal. And with FHA or VA loans, there is no waiting period after the court dismisses the bankruptcy.
Tips for Applying for a Mortgage after Bankruptcy
1. Build back your credit.
2. Get pre-approved.
3. Write a letter of explanation.
4. Respond promptly and thoroughly to any questions from the lender.
When you show that you have learned something with tangible history and behavior change, then a lender is more likely to trust you.
If you are ready to take steps toward buying a home after bankruptcy, contact our team at Miles & Hatcher, LLP. We can answer any other questions regarding bankruptcy as well. You can call to schedule a free consultation: (909) 481-4080.