Unfortunately, life sometimes throws a person off-balance and filing for bankruptcy is the only option. And after filing for bankruptcy, it may seem lenders will never loan you money to buy a house. But with about 800,000 Americans filing for bankruptcy every year, most people who file for bankruptcy are well-intentioned people who are just trying to get back on their feet. For most of them, there is life after bankruptcy.
While 32% of people who are looking to buy new homes are buying a home for the first time, it is still possible to close on a home loan even after filing for bankruptcy. However, it’s important to know what a lender will expect from you post-bankruptcy to help you successfully buy a home.
First, it’s important to understand the differences between the common types of bankruptcy. Chapter 7 and Chapter 13 are the two ways to file for personal bankruptcy. Of course, filing for bankruptcy requires a fee. A Chapter 7 filing requires a $335 fee and a Chapter 13 filing requires a $310 fee.
After filing for Chapter 7 bankruptcy, filers are generally released from their obligation to pay back unsecured debt like credit cards or medical bills. On the other hand, Chapter 13 filers have to pay back their debt, but it is reorganized to make payments affordable.
Because Chapter 13 filers are continuing to pay back their debts, they often have a better chance of getting approved for a loan. However, this does not mean Chapter 7 filers have no chance of getting approved.
Now, how long should you wait to apply for a loan after filing for bankruptcy? For Chapter 7 bankruptcy, consumers typically have to wait four years for conventional loans and two years for FHA or VA financing. And for Chapter 13 bankruptcy, consumers can usually get a conventional loan after two years and apply for FHA or VA loans in even less time.
Now that your debts have been relieved or reorganized, you’re going to need to figure out where you are financially. Before you apply for a loan, you need to reorganize your finances. To start, you should get copies of three main credit reports. It’s going to be important to show financial transactions and transgressions from the past. But you’re going to want to check these reports to ensure they are correct.
It’s also important to create a budget and grow your savings after bankruptcy. This will not only allow you to be able to pay off remaining debt but show lenders you’re capable of saving money responsibly. It’s crucial that you don’t get behind on any current bills or this could hurt your chances of being approved for a loan.
After your finances have been organized and you feel like they’re under control, it’s time to make a plan. This plan is going to include calculating what you can afford to spend on a home, figuring out how to pay for additional expenses that may arise, and organizing documentation of your financial situation. When you start to visit lenders, it’s important you have records of account statements, pay stubs, and other important documents relating to your finances.
When it comes time to begin applying for home loans, it’s important to be as honest as possible. Most lenders will require a detailed letter explaining your bankruptcy situation. You should explain the circumstance that caused you to have to file for bankruptcy and how you took back control of your financial situation after bankruptcy.
Overall, buying a home after filing for bankruptcy is a long, complex process. But with patience, determination, and a little organizing, it’s absolutely possible.