There was a time in this country’s history where declaring bankruptcy was far too embarrassing for someone to even contemplate. It was a dirty, humiliating little secret that few cared to divulge to anyone.
Thankfully, that’s no longer the case. What remains, however, is the stigma it casts upon your credit record. If you’re trying to buy a house after bankruptcy, read on.
How long before I can buy?
Typically you’ll need to wait two years from the date of the discharge of a Chapter 7 bankruptcy before applying for a loan a conventional or Federal Housing Administration (FHA)-backed loan. There are exceptions to this rule, however.
FHA allows those who underwent a Chapter 13 bankruptcy, however, to apply for a loan after payments have been made and verified for one year and the borrower has the court trustee's written approval.
FHA’s “Back to Work – Extenuating Circumstances” program includes exceptions to the waiting periods for certain borrowers and may cut the waiting period to one year after discharge. To qualify, the borrower must first be able to document the hardship that required him or her to resort to filing for bankruptcy.
Then, you must meet FHA’s loan requirements, prove you’ve re-established your credit and been responsible with your money and, finally, attend FHA-approved housing counselling sessions.
Your credit score
Let’s face it ― the mortgage process shines a huge magnifying glass on your finances. From how much cash you’ll have for a down payment and closing costs to how much debt you’re on the hook for every month, every aspect of your financial life will be scrutinized.
After a Chapter 7 bankruptcy you’ll have little to no debt as it will have been wiped out during the proceedings. Therefore, one of the items that the lender places lots of credence in, your debt-to-income ratio (DTI) should be rather low.
As long as you don’t take on any debt between when the bankruptcy is discharged until the time you apply for a loan, you’ll be sitting pretty.
Concentrate on paying your bills on time and not taking on new debt and the waiting period between bankruptcy discharge and loan application will prove beneficial.