One of the biggest concerns for those who are facing bankruptcy is how long they will have to wait before they can qualify to buy a home after filing. The truth is many in this situation may actually qualify much faster to buy a home than they would have if they hadn’t filed.
In order to purchase a home a potential homeowner must have sufficient income and a good enough credit score to qualify for a home loan, along with the required down payment and closing costs. Most people who file for bankruptcy have credit scores that are in such bad shape it would take years before they could settle all their debts and then rehabilitate their credit scores enough to qualify for a loan.
The typical mortgage loan utilized by first time home buyers, or those trying to get back in to a home, is an FHA loan. These loans, guaranteed by FHA, have certain minimum qualifying standards which FHA has established. Mortgage lenders will often have stricter requirements related to how much time must pass after filing a bankruptcy, but this will vary so it is worth checking around.
The FHA guideline for a mortgage loan after filing for a Chapter 7 Bankruptcy is 2 years after receiving a discharge. Effectively this means about 2 years and 4 months. You must re-establish good credit, have a stable job, and provide a satisfactory, detailed explanation for the bankruptcy filing, when you apply for the mortgage. Currently many lenders are requiring potential buyers to wait 3 years, the same time period that is required after a foreclosure.
The waiting period guideline from FHA for those who have filed a Chapter 13 bankruptcy is only 1 year. That means if a potential homeowner can demonstrate 1 year of timely payments on their Chapter 13 (yes, this means they can apply for a mortgage while they are currently in a Chapter 13), provide a satisfactory explanation for their bankruptcy, show current good credit and a stable job, they could qualify for a FHA mortgage to purchase a home. However, once again, many (but not all) lenders are currently requiring 3 years due to the strict lending environment.
In any event, even 3 years after the filing of a bankruptcy would in most cases provide the opportunity to get a home loan years faster than if these potential homeowners had to spend years settling their debts and then several more years after that re-establishing credit.
CHAPTER 13 BANKRUPTCY
FHA will consider approving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee’s written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and show job stability.
CHAPTER 7 BANKRUPTCY
At least two years must have elapsed since the discharge date of the borrower and / or spouse’s Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.