If you are considering filing for bankruptcy, or have already decided that doing so is in your best financial interests, then one of the most important questions you may have is: how long after bankruptcy can I buy a house?
Here’s the short and stress-relieving answer: it will probably not take as much time as you think — or as you dread!
Now for the longer explanation: it is true that a chapter 7 bankruptcy will remain on your credit report for 10 years, while a chapter 13 bankruptcy will remain on your credit report for 7 years. However, it is NOT true that you need to wait 7-10 years after a bankruptcy filing (depending on the chapter) to get a loan to buy a home. Here are some of the options that may be available to you much sooner than you think:
Federal Housing Authority (FHA) Loan
Generally, you can apply for an FHA loan two years after the date of your bankruptcy discharge. If you file for chapter 7, this could be in about 2.5 years from the date of filing. If you file for chapter 13, this could be in about 3.5-5.5 years (this is because in chapter 13 bankruptcy, you must adhere to a court-approved repayment plan that lasts for 3-5 years before discharge).
However, depending on the details of your bankruptcy case, you may be able to apply for an FHA loan 12 months after discharge instead of 24. To qualify for this exception, you must demonstrate two things: that you filed bankruptcy through no fault of your own (e.g. excessive medical debt), and that you have handled your financial responsibilities property since filing for bankruptcy.
United States Department of Agriculture (USDA) Loan
A low-interest USDA loan may be available to you if you are in a low or middle-income bracket, and are willing to purchase a home in a rural community.
If eligible, you can apply for a USDA loan three years after getting discharged from chapter 7 filing, or 12 months after discharged from chapter 13 bankruptcy. As with FHA loans, if you can demonstrate that your bankruptcy filing was through no fault of your own, then you may qualify for an exception that would allow you to apply for a USDA loan 12 months after discharge. More information on this program is available here.
Veterans Affairs (VA) Loan
If you are a veteran, then you may qualify for a VA loan to meet your housing needs. There is no down payment requirement, and you may use the loan program multiple times. To qualify, you will need to demonstrate that you have paid your bills on time and without issue for two years after discharge (from either chapter 7 or chapter 13). More information on this program is available here.
You can also apply for a conventional mortgage from a private lender. If you file for chapter 7 bankruptcy, then you’ll be eligible 2 years after discharge if the bankruptcy was beyond your control, or 4 years after discharge if it was due to financial mismanagement. If you file for chapter 13 bankruptcy, then you’ll be eligible 2 years after discharge, or 4 years after dismissal (i.e. if you fail to complete the repayment plan).
Also keep in mind that the government does not insure private conventional mortgages. As such, you’ll be required to pay mortgage insurance in addition to the loan’s carrying costs (principal plus interest). The good news is that once you have 20 percent equity in your home, you’ll typically be allowed to stop the insurance payment.
The Bottom Line
Each year, hundreds of thousands of people across the country file for chapter 7 or 13 bankruptcy, and typically within two years — and in some cases, within 12 months — they’re back on-track toward buying a home. They are achieving their home ownership dreams after bankruptcy, and so can you!
To learn more contact the Law Office of Charles H. Huber. We have over 30 years of experience filing consumer bankruptcy cases.