According to the U.S. Courts, “Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts.” If you are considering filing for bankruptcy, you are not alone. In 2018, 785,000 Americans filed for Chapter 7 bankruptcy, and another 222,000 filed for Chapter 13 bankruptcy.
While bankruptcy can offer a fresh start, it will also stay on your credit report for seven to ten years and can make it challenging to qualify for a loan during that time. So, if you’re hoping to buy a new home soon after filing for bankruptcy, you may be wondering how long you’ll have to wait before you can apply for a post-bankruptcy loan.
Filing For Bankruptcy
There are two types of personal bankruptcies, Chapter 7 and Chapter 13. Chapter 7 bankruptcies, also known as straight or liquidation bankruptcies, allow filers to eliminate most of their debt by selling off their assets. Chapter 13 bankruptcies, also known as wage earners’ bankruptcies, require filers to repay at least some of their debt over the course of three to five years.
Chapter 7 Bankruptcy Discharge
If you file for Chapter 7 bankruptcy, your discharge, the legal order that releases you from your debts, will usually happen about four months after your case is filed. Once your clearance is finalized, you’ll need to wait two years before you can apply for a conventional mortgage. However, if you want an FHA, VA, or USDA loan, you’ll only need to wait one year. Remember that even if you meet these waiting periods, you’ll still need to re-establish good credit before lenders consider approving your loan application. The best way to do that is by making all of your payments on time and keeping your credit card balances low.
Chapter 13 Bankruptcy Plan Payment
If you file for Chapter 13 bankruptcy, your situation is slightly different. That’s because, with Chapter 13 bankruptcies, the court approves a repayment plan that lasts anywhere from three to five years. Once you’ve made all of the required payments under your project, which typically total around $5,000, you can apply for a mortgage. There is no waiting period if you want an FHA or VA loan, but there is a two-year waiting period if you’re applying for a conventional mortgage or USDA loan. As with Chapter 7 bankruptcies, however, you’ll still need to re-establish good credit before lenders consider approving your loan application. The best way to do that is by making all of your payments on time and keeping your credit card balances low.
Associates Home Loan
Associates Home Loan is a unique home loan program that allows individuals who have filed for bankruptcy to purchase a home. This program is designed to help individuals re-establish their credit and return to their feet after filing for bankruptcy. The program is available to individuals who have filed for Chapter 7 or Chapter 13 bankruptcy.
In order to qualify, you must have completed your bankruptcy repayment plan and received a discharge from the bankruptcy court. You will also need to provide proof of employment and income. If you qualify, you will be able to finance up to 100% of the purchase price of your new home. This home loan program can help you rebuild your credit and get back on the road to financial stability.
Freddie Mac’s Home Possible® program
For example, Freddie Mac’s Home Possible® program offers conventional mortgages with as little as 3% down to borrowers who have either already completed the bankruptcy process or are still working their way through it.
Fannie Mae’s HomeReady program
Fannie Mae’s HomeReady® program offers conventional mortgages with as little as 3% down to borrowers who have completed the bankruptcy process and have re-established good credit.
Fannie Mae’s Flex Modification program may be an option for borrowers who are still working through the bankruptcy process. This program allows borrowers who are current on their mortgage payments but have experienced financial hardship to modify their loans to make them more affordable.
There is no easy answer when it comes to how long after bankruptcy you can qualify for a loan. It depends on the type of bankruptcy you file, whether or not you stick to your repayment plan, and how quickly you’re able to rebuild your credit afterward. That said, if you’re hoping to buy a new home soon after filing for bankruptcy, there are programs available that can help make that happen sooner rather than later. The key is to work with a lender who understands bankruptcy and knows what options might be available, given your unique circumstances, and to apply for a post-bankruptcy loan.