One of the most common bankruptcy myths that we hear from clients is that if they file bankruptcy they will never own a home again.  For some reason, misinformation has circulated making people believe that seeking relief through the bankruptcy court prevents them from buying a house after bankruptcy.  That is simply not true.  In many cases, buying a house after bankruptcy is made possible because the person cleans up his or her debt problems through a bankruptcy filing.  After the bankruptcy case is complete, the person is in a much better financial position to buy a house.

Buying a House After Bankruptcy Through Owner Financing

This is another bankruptcy myth associated with the misguided belief that people who file for bankruptcy relief can never buy another home.  Many people believe their only hope of buying a house after bankruptcy is to find an owner-financed home to purchase.  While some people have success buying a house after bankruptcy through this process, it is not always the best option.

If you do not use an attorney to handle the transaction, you may have serious problems later.  There could be title defects, liens, or other issues with the house that the seller has not disclosed. Furthermore, you must have an attorney draft the proper legal documents outlining the entire agreement to protect yourself from paying for years on a home only to discover that you do not own it. 

If you are considering buying a house after bankruptcy through owner-financing, you should discuss the matter with an experienced real estate attorney.

You Can Qualify for Mortgage Loans After Bankruptcy

Life does not end after bankruptcy – you will own a home, buy a new car, and take vacations if you choose to do so.  Buying a house after bankruptcy is possible and mainly depends on two elements – the chapter of bankruptcy you filed and the type of mortgage you want to obtain.

Different lenders have various rules and regulations regarding the time frame between a bankruptcy case and the date when a person can qualify for a home loan. Some of these rules and regulations are internal while others are standard to the mortgage industry. The type of bankruptcy case filed can also affect the time frame.  Below is a simple chart outlining the major types of mortgage loans and the waiting period between the closing of a bankruptcy case and the date when you can apply for a new mortgage.

Conventional Fannie Mae Loans

If you are buying a house after bankruptcy using a conventional Fannie Mae loan, you can apply for a loan:

 

  • Chapter 7 – Four years after the date of discharge

  • Chapter 13 – Two years after the date of discharge

 

Federal Housing Administration (FHA) Loans

If you are buying a house after bankruptcy through the Federal Housing Administration (FHA), you can apply for a loan:

 

  • Chapter 7 – Two years after the date of discharge

  • Chapter 13 – One year after the date of discharge

 

Veterans Administration (VA) Loans

If you are buying a house after bankruptcy with a VA loan, you can apply for a loan:

 

  • Chapter 7 – Two years after the date of discharge

  • Chapter 13 – One year after the date of discharge

 

USDA Loans

To qualify to buy a house after bankruptcy with a USDA loan, you can apply for a loan:

 

  • Chapter 7 – Three years after the date of discharge

  • Chapter 13 – One year after the date of discharge

Subprime Loans

In some cases, people who are buying a house after bankruptcy will choose to apply for a loan that is not government backed.  For many people, subprime loans are quicker and easier to obtain; however, they come at a substantial cost. Borrowers often pay substantially higher interest rates, closing costs, and down payments to qualify for a subprime loan after bankruptcy. Some lenders charge as high as 15% interest with a 30% down payment and substantial closing costs and fees.

It is better to wait a year or two after filing bankruptcy to buy a house, if possible.  Most people see an improvement in their credit score within a year or two following the bankruptcy filing.  During this time, the person can work to improve his or her credit score, save money for closing costs and the down payment, and work toward improving his or her financial well-being by using the skills learned through the bankruptcy debtor education course to learn to budget and manage money wisely.  Then when it is time to buy a house after bankruptcy, the person is in a good financial position to buy the house of their dreams.

Contact an Experienced Bankruptcy Attorney

If you are dealing with overwhelming financial problems and harassing debt collectors, contact Weston Legal, PLLC to discuss your bankruptcy options.  We will help you find the best solution to solve your debt problems.