Even if you have past-due bills piling up on your counter and mounting credit card debt, you might be hesitant to file for Chapter 7 bankruptcy because you’re afraid you’ll never be able to buy a house.
Fortunately, you can both get rid of your debt and buy a house – as long as you take the right steps and work with a bankruptcy attorney.
When Can You Apply For A Home Loan?
A Chapter 7 bankruptcy will impact your credit score negatively since the majority of your debts will be discharged (instead of you paying them off through a repayment plan like in Chapter 13 bankruptcy). Because of this, you will need to wait a certain amount of time before applying for a home loan. The length of time can depend on the type of loan you are trying to get. Typically, lenders will require you to wait four years before applying for a conventional loan, and two years for an FHA or VA loan.
Which Type of Home Loan Is Best?
With a Chapter 7 bankruptcy on your record, it’s important to know what to expect from each type of home loan, and how you might be able to qualify.
- FHA: After a Chapter 7 bankruptcy, an FHA home loan might be your best bet. As we stated above, it has a shorter waiting period after bankruptcy than a conventional loan, and it can have lower credit score requirements. The higher down payment you put down on the house, the better odds you’ll have of being approved for a loan with a lower credit score.
- Conventional: The waiting period for a conventional loan is longer than it is for an FHA loan, and it also requires a higher credit score. This means you will need to prove you can make regular, on-time payments after your bankruptcy.
- VA: VA loans are reserved for military veterans. These loans can be more lenient when it comes to credit scores, as long as other terms of the loan are met.
How To Improve Your Chances of Getting a Home Loan
With a Chapter 7 bankruptcy on your credit report, it’s essential to do everything you can to improve your financial resume before applying for a home loan. Some tips our experts recommend are:
- Increase your credit score: After your bankruptcy, make sure to pay all of your bills on time to establish a positive routine of on-time payments. Over time, this will help boost your score. You should also try to obtain new lines of credit, like a credit card. This will help increase your score, but it’s important to be careful with the new card and only charge what you can pay off that month to not acquire new debt.
- Avoid problems that led to your bankruptcy: To keep your debt under control and to allow you to pay your bills on time, you need to ensure you are living on a budget and not tallying new debt. Figure out your expenses and how much money you have in disposable income each month and stick to those limits to keep living within your means.
- Write a bankruptcy explanation letter: When you apply for a mortgage, the lender will know about your bankruptcy. They do a thorough financial background check on each applicant, so there is no need to hide it. Instead, address the bankruptcy head-on and write a letter of explanation to provide information on what led to your bankruptcy. You should also include details in the letter on financial changes you’ve made since your bankruptcy to show you can make your monthly payments on time.
- Get a pre-approval letter: A pre-approval letter from a lender tells you how much money you are approved to borrow for the home loan, and it shows sellers that you have been approved to get a loan to buy the house. This will help when you go to make an offer.
When you file for Chapter 7 bankruptcy, it’s essential to work with a bankruptcy attorney so you know exactly what to expect during the process, as well as afterward. This will allow you to tell your attorney you want to purchase a house soon after your bankruptcy, and your attorney can then help you take the right steps to make that happen.
Contact an Attorney
Are you hoping to purchase a house after filing for bankruptcy? You need an expert on your side. It’s crucial to hire an experienced attorney to help you through the bankruptcy process and answer your questions. Our bankruptcy attorneys can review your options with you and help you find the best path for you and your financial future. Don’t let debt ruin your life. Call (405) 529-9377 for a free case review.