Will Bankruptcy Stop Me From Buying A House?
Stop and take a deep breath, because no, bankruptcy will not prevent you from buying a house. Countless people have gone on to be approved for purchasing a home after bankruptcy.
Almost everyone aspires to own a home, but filing for bankruptcy does not mean your financial downfall. Filing a bankruptcy whether Chapter 7 or Chapter 13 does not create a barrier to home ownership if you are otherwise able to become credit worthy in the future.
A Fresh Start
The central premise of bankruptcy law in the United States is to give individuals a fresh start in their financial lives relieving past debts. This includes debt related to medical bills, credit card bills, personal loans, business debts, social security over-payments, past due rent, civil court judgments (excluding fraud), collection agency accounts, and many other types of debt. With bankruptcy, the crushing weight of old debt is off your shoulders. You are now free to earn and save money free from the lawsuits of past creditors.
That being said, it’s important to make future payments on time for utilities, credit card, and other bills in order to build healthy credit. Following bankruptcy, most people will see improvements in their credit score in six months to a year. Improving credit scores are what lending institutions look at to get you approved for a home loan and size your mortgage when you look to buy a home.
The banks don’t always know what is best
Many will tell you to wait at least ten years before applying for a home loan, but that’s simply not true. The wait time for a home loan from Fannie Mae or Freddie Mac after a Chapter 7 bankruptcy is only two years. If two years is too long, you may be able to get a housing loan approved if your bankruptcy was caused by a factor out of your control, such as a medical emergency, and if your income was reduced by at least 20% for at least six months.
Whether you filed chapter 7 or 13 bankruptcy..
We will work with you for your right to own a home after bankruptcy, whether that means fighting creditors or the banks themselves to get you approved for a mortgage. Many clients come back to our office after a bankruptcy filing with mortgage pre-qualification letters in one hand and contracts to buy homes in the other hand.
Important to Note:
Over 90% of mortgages are eventually sold to Fannie Mae or Freddie Mac, two quasi-government agencies. Fannie and Freddie currently are buying mortgages of people who have gotten a Chapter 7 discharge two years before if there have been no new credit problems or if you have been in a Chapter 13 for a year and have made 11 of the last 12 monthly payments on time. Add one year to both calendars if you were in foreclosure at the time you filed under either Chapter.
