Can You Buy a House After Filing Bankruptcy?

It may seem like a far-off dream to be able to purchase a home after a bankruptcy. After all, a bankruptcy does stay on a credit report for up to 10 years, and it’s not something lenders want to see when they’re thinking about loaning money to a client. However, it’s not always necessary to wait 10 years to be able to purchase a home, and there are some things the person can do to make it easier to obtain a mortgage and buy a home faster.

How Long to Wait Before Looking

While it isn’t necessary to wait the full 10 years before buying a home, there are wait periods to get a mortgage. The waiting period generally depends on the type of mortgage. For a conventional mortgage, it’s necessary to wait at least two years after a Chapter 13 bankruptcy or four years after a Chapter 7 bankruptcy. After one year for a Chapter 13 or two years following a Chapter 7 bankruptcy, it’s possible to apply for an FHA or VA mortgage. For those who are looking into a USDA mortgage loan, it’s necessary to wait one year after a Chapter 13 and three years after a chapter 7 bankruptcy.

It is important to note that the mortgage rate will be higher if someone has a bankruptcy in their credit history. By waiting 10 years for the bankruptcy to disappear, it’s easier to get a far better interest rate. However, there are ways around this, and working hard on the credit score recovery can help the person rebuild their credit enough that the interest rate may be a little bit lower.

How to Rebuild Credit

A credit score is likely low immediately following a bankruptcy, so it is necessary to start rebuilding. While someone is waiting for the ability to apply for a mortgage again, no matter what kind of mortgage they’re looking for, it’s possible to start rebuilding. There are a few options, all of which can help the credit score rise faster.

  • Check for Errors – Errors on a credit history can cause the score to be lower than it should be. Check the credit report for all three major companies at least once per year to look for any errors and follow through to have them fixed as quickly as possible.
  • Pay Off Remaining Debts – If there are any remaining debts, like student loans, pay them off as fast as possible. This will help boost the score faster than other options.
  • Get a Secured Card – Secured credit cards are backed with cash, so they’re easier to obtain, even for those who have low to no credit. Still, they work the same as credit cards, so as someone spends money and pays off the card, it’s going to be reported to the credit boroughs like a credit card and will help boost their score.
  • Get an Installment Loan – An installment loan is a short-term loan for a smaller amount of money. Generally, the money can be used for anything. While this can be risky if the installment loan is not repaid promptly, those who can make payments regularly and pay it off on time will see a boost to their credit score.

Before taking any of these steps, make sure that on-time payments will be reported to the credit boroughs. If the payments are not reported, it’s not going to help the credit score improve.

What to Expect When Looking for a Mortgage

If the bankruptcy still appears on the credit history, there are a few things the person should expect. They will likely need to spend a little more time looking for the right mortgage, as shopping around is the only way to make sure they can get a mortgage at the ideal possible rate. They should also expect to have a higher interest rate when they do find a mortgage.

While it may be possible to find different interest rates with different lenders and minimize the rate, it will still be higher than the interest rate offered to someone who has a good credit score without a bankruptcy. Borrowers should also expect they may need to do more to obtain a mortgage, like show how they have been working to improve their credit score and prevent the same issues they had that caused the bankruptcy.

Getting a mortgage after bankruptcy can be more difficult, but it’s not impossible. Though there are wait times before someone can apply for a mortgage, they don’t have to wait the full 10 years for the bankruptcy to disappear from their credit score. If you’ve gone through a bankruptcy and would like to purchase a home, use the information here to know how and when to start looking for a loan.

Get a personalized loan consult with one of our experts today.