In some cases, you have exhausted your emergency fund, and have decided there is no option other than to file for bankruptcy to pay off your debt. You may decide to work with a bankruptcy attorney. Plus, you should know all real estate agents and mortgage lenders who have experience working with people with bankruptcy on their credit score.
When you declare bankruptcy, you may find it hard to improve your credit score and financial condition. Even worse, you may think you will never be able to buy a house again, but the reality is different.
Who wants bankruptcy? Of course, no one wants to fall into this drastic situation. But people dealing with financial troubles may think it is the only way to get out of debts and start from the beginning.
However, bankruptcy may minimize financial stress and allow you to focus on making positive financial decisions for your future. So are you ready to move forward and make your dream of owning a home come true? So, adopt the following strategies to achieve the goal.
How Long After Bankruptcy Can I Buy a House?
You can buy a house approximately one or two years after filing for bankruptcy, only if you restore your credit and avoid new debt. Filing a Chapter 7 or Chapter 13 bankruptcy will impact your credit report and put a negative score on your credit. But it does not mean that you cannot buy your own house.
Chapter 7 Bankruptcy
The standard type of bankruptcy is Chapter 7, in which the court wipes down your qualifying debts. In this case, your credit score is affected. If you file Chapter 7 bankruptcy, you have to wait for about four years after the court dismisses your bankruptcy to make you eligible for a conventional loan.
However, government-backed mortgage loans are more complex. You have to wait for about three years after your bankruptcy’s dismissal to qualify for a USDA loan. At the same time, you have to wait for about two years in order to qualify for a VA or FHA loan.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy involves the restructuring of your debts. That means you have to make scheduled payments to your creditors. It does not have a substantial effect on your credit score. Moreover, you can keep your assets as well. While regulations for chapter 13 are less severe than Chapter 7, these loans also have a waiting period.
Conventional loans after chapter 13 bankruptcy usually require a waiting period depending on the court’s choice to handle your bankruptcy. Generally, the waiting period is about four years from the date you file bankruptcy and two years from your dismissal date.
While chapter 7 bankruptcy standards are relaxed for government-backed loans, USDA loans have a 1-year waiting period after filing for Chapter 13 bankruptcy. FHA and VA loans need a court to dismiss or discharge approval of your loan before your apply. However, the waiting period remains the same in both cases, whether dismissal or discharge.
How Can I Buy a House After Bankruptcy?
The good news is you can still buy a new home even if you declare bankruptcy. It may be a long process and require extraordinary effort, more than the average prospective homeowner.
Legally, you have to wait until the judge dismisses your bankruptcy before getting a loan. Still, later on, it overall depends on how fast you can get your finances back in order.
Restructure your Finances
Some of your debts get paid after bankruptcy, so you may be on the way to recovery. But bear in mind not to go faster to acquire a house. Wait for your finance to get in order completely.
Analyze your Debts and Credit Report
Analyze your current financial position to check out where you stand now. The next thing you can do is get a copy of your credit report. If you have a previous record of your finance before filing for bankruptcy, you can use it to analyze the complete picture of your past and current financial position. Make sure to check your financial status regularly so that you can keep an eye on mistakes and correct them accordingly. It will encourage you to make further progress ahead.
Create a Budget Together
Another step you can follow to buy a house after bankruptcy is taking controlof your monthly budget. You can create a reasonable budget by paying all your bills on time. Figure out your overall monthly expenses, and check out the spaces you can adjust your budget. Besides, you can foresee upcoming annual costs, including taxes or car registration, and keep some money aside to settle these expenses.
Improve your Savings
Another effective way to plan for buying a house after bankruptcy is to improve your savings. After you have adjusted your finances, you can start saving now.
Decide How much You can Save
However, bankruptcy will teach you a positive lesson to keep aside a bit of your money every month. You don’t need to save a significant amount each month. You may save a small amount that is feasible for you. The more you save, the better you can contribute and prepare for uncertain situations.
Another way to save money is putting money towards a down payment by using a “forced saving” method. The method means you need to put it into savings before you even receive it. It is a common technique to plan an automatic deduction from your monthly paycheck that directly transfers the amount into your saving account.
Plan your Objective
After determining how much to save each month, you can now set a decided amount for a future home down payment. You may put down 20% of the overall purchase price of a new home. No doubt, you can also get some home loans with a smaller down payment.
Prepare a Strategic Plan
Homeownership is not an easy goal to achieve. Of course, it requires a lot of effort, time, and expenses. If you are stuck at how you can buy a house after bankruptcy, the following practices can help you solve the problem. It will provide you a clear idea of “Should I file for bankruptcy?”
Focus on your Affordability
Along with saving up for a down payment, you can also regulate your monthly spending to analyze the overall cost of maintaining a home. However, a favorable decision is to spend more than 30% of your income on housing expenses, including mortgage payments. You can use a calculator to check out exactly how much you can afford to save your income.
Plan an Inspection
Here is another proper technique; you can get a thorough look at appraisal and home inspection. It will help you identify the potential problems you may need to fix in the first few years. If you cannot afford those repairs, it is better to consider looking for a different house. It will save you from falling into credit card debt and increase your security.
Additional Costs and Factors When Buying A Home After Bankruptcy
On top of essential home repairs, you need to keep in mind regular maintenance like landscaping, snow removal, and pest control.
Moreover, you need to save a certain amount for the repairs in case of uncertain natural disasters.
Organize your Financial Documentation
Filing for bankruptcy gives you a clear idea that you have to organize months or even years of account statements. Besides, it involves pay stubs, tax returns, a list of assets, and other financial documentation. Buying a house after bankruptcy is not as simple as going through the legal process of reorganizing your debts.
If you have decided to buy a house, you can start keeping financial records from now onwards. Having an organized financial record will give you all details, and you will get a clear idea of your budget and net worth.
When it comes to mortgage approval, keeping a record of all documents is the most significant. You need to keep your documentation record in both forms, electronic and paper records. Get a copy of your bank petition ready and put your credit report and bankruptcy discharge documentation in it.
Let’s view how to organize your financial documents into different categories.
- Investments records like savings bonds, retirement accounts, and stocks
- Bank, credit card, and loan statements
- Insurance documents record
- Tax records
- Legal documents such as your bankruptcy petition and marriage or divorce records
- Employment records, including pay stubs
- Medical bills, including your significant medical expenses
When it is time to make a house purchase, check out in advance what documents the lender requires and get everything ready before time. Any missing document could lead to delays and cost you additional expenses.
Consider Mortgage Options
Considering mortgage options by comparing lenders can benefit you because purchasing a house is one of the biggest deals. Many individuals may overlook comparing the mortgage options. It would help if you analyzed the whole picture from every angle to make sure you make the right deal as per your financial condition. If you recovered from recent bankruptcy, you could expect a higher interest rate.
Figure out the Loan Type you Need
It is crucial to consider which loan type you need. Private lenders offer conventional loans like mortgage companies, credit unions, and commercial banks. These loans have strict criteria for approval, but these ensure flexibility after the loan is secured.
On the other hand, government loans are also accessible. One of the best-known government loans is the FHA loan, administered by the Federal Housing Administration. These loans have more flexible requirements for income and down payments.
Nevertheless, FHA loans often limit your ability to change the property. These loans may be specific for first-time homebuyers or low-income homebuyers who use their houses as primary residences.
Examine your Interest Rate Options
Now, let’s discuss the nature of the financing. You have two options; either to get a fixed-rate or an adjustable-rate mortgage.
With a fixed-rate option, you have to stick to the interest rate available when you sign your loan documents. It allows you to have a regular mortgage payment. But you need to refinance the home loan it if you want a lower interest rate.
Conversely, adjustable-rate mortgages keep changing as per market rate fluctuation. Due to the unpredictability, you would have a much larger monthly payment than you started.
Don’t Overlook Additional Fees and Expenses
Typically fee includes appraisals, inspections, title processing, and escrow. You have to pay these fees as front expenses, or they turn into your loan. If the prices merge with your loan, the costs may impact your monthly payments and the total interest you pay over the loan’s lifetime.
Since you are taking a mortgage after bankruptcy, have a thorough look at if the extra fees are affordable for your future goals. You have struggled hard to rebuild your credit to buy a house. And you don’t intend to go down under an interest rate of a jumble of fees that you cannot afford comfortably.
You can use the online calculator to search about the impact of your location, credit rating, length, and type of loan on your interest rate, as well as predictable monthly payments.
Final Surviving Bankruptcy Tips
You may question whether should I file for bankruptcy? Studies suggest that unemployment, overextended credit, marital problems, and emergency medical debt are the major reasons for considering bankruptcy. This way, the cash from your assets gets distributed to creditors, including bank and credit card companies.
Overall, homeownership after bankruptcy is not impossible to achieve if you follow all legal practices strategically. You still have several options to rebuild your financial future. The only thing you need to do is get a clear understanding of all procedures to achieve your goal. With the help of the above useful strategies and practices, you will have a better idea of should I file for bankruptcy?
About Anita Clark Realtor
Anita Clark has written 645 posts on this blog.
by Anita ClarkAnita is a residential Real Estate Agent in Warner Robins Georgia, with Coldwell Banker Access Realty (478) 953-8595, aiding buyers and sellers with all their real estate questions on her Warner Robins blog.
