Many people believe that once they have a bankruptcy on their credit report, they cannot buy a house. It is true that bankruptcy can make it difficult for you to buy a house, but not for long. The average waiting period is 2 years. That means that even if you file for bankruptcy and it is successful, you can begin the process to buy a home in 2 years. You should note that the period starts from when you were discharged. A bankruptcy discharge is an order from a bankruptcy court and when this order comes, it means that the debtor is no longer liable for the debts and the creditor cannot try to collect the debts that have been discharged. Here are common mortgage loans that are available to people who have filed for bankruptcy. This article will also talk about eligibility requirements for people who have filed for bankruptcy.
Federal Housing Authority (FHA)
This loan is offered by the Federal government. This mortgage is attractive to people who are getting this mortgage for the first time since the down payment required is low. You can make a down payment as low as 3.5% of the price that you are going to use to purchase the home. Although you make a down payment as low as 3.5%, if you have a lower credit score, you will need to make a higher down payment. If you have a credit score that is higher than 640, you need to make a minimum cash deposit of 3.5%, but if your credit score is lower, you will need to make a minimum cash deposit of 10%.
After filing for chapter 7 bankruptcy
You will need to wait for two years after the discharge of a chapter 7 bankruptcy to qualify for this mortgage. When you open new credit accounts after a bankruptcy discharge, you should make regular payments on time. Once you are able to make payments on time, you should have no problem securing an FHA mortgage. FHA has another provision that waives the credit score requirement for people who decide not to get new credit after they have filed for bankruptcy. There are instances where people file for bankruptcy due to situations that are not their fault. If that is what happened to you and you are able to prove it, you will not need to wait for 2 years to get an FHA mortgage. The waiting period will be reduced to 1 year. Even with that, you must demonstrate that you are using your account responsibly.
After filing for a chapter 13 bankruptcy
The process of filing for a chapter 13 bankruptcy is lengthy. It takes between 3 to 5 years to successfully complete the process. Even with that, you can secure an FHA mortgage to purchase a house during the process. You will, however, need to meet certain conditions to secure this loan:
- You need to make at least 12 months’ payment of the plan payments.
- You have been able to prove that the reason for the bankruptcy will not happen again.
- The court has approved that you can use an FHA loan to purchase a house.
If you are considering this option, it is advisable to get an experienced bankruptcy attorney. The lawyer can even help you to develop a payment plan.
United States Department of Agriculture (USDA) Loan
This loan option is available for low and middle-income earners who want to take out a loan in a rural community. With this loan, the interest rate is low and there is no down payment required. Chapter 7 bankruptcy filers can access this loan three years after a bankruptcy discharge. However, there is a condition that can make someone qualify for this loan just a year after a bankruptcy discharge. You should be able to prove that the bankruptcy you filed for was not as a result of financial mismanagement. If you are able to prove this, you will be able to apply for the loan in 12 months.
Veteran’s Affairs (VA) Loan
This loan is available to veterans. With this loan, there is no down payment required and no minimum credit score requirement. VA checks if you have been able to manage your finances well after the bankruptcy. However, foreclosure can disqualify if you do not meet this condition: if you purchased a house with a VA loan and you lost it through foreclosure, you will need to pay back the cash you owe.
Apart from the three government-backed loan options, there are conventional loans as well. Since conventional loans are not backed by the government, lenders have a higher risk of lending to bankruptcy filers. Due to this, they come with higher qualification requirements. You will need to provide a higher credit score as well as a higher down payment to get these loans. The waiting period is also longer. You will need to wait for up to 4 years after a bankruptcy discharge to apply for a conventional loan. Below are some of the private lenders who are willing to offer loans to people who have filed for bankruptcy recently.
- Lending Tree
With Lending tree, you are linked to a pool of lenders who will give you the option to choose from numerous loan options. When you submit the application, the lenders will review your application and make their offers to you. Lending Tree gives you options for reverse mortgages, refinance, home equity, and home purchases. Lending Tree was established in 1996 and the financial institution has funded over 55 million loan applications over the years.
Citibank is a great option since it does not demand high down payments. The seller can contribute up to 6% of the price of the sale. CitiMortgage has a flexible lending guideline. The interest rate varies. With CitiMortgage, the closing process is fast.
- Bank of America Mortgage
With this loan option, you will need to pay a down payment and a closing cost assistance. If you meet all the qualifications, you can get financed up to 100% and that means you will not be providing a down payment. You do not need to worry about your income since there are no income limitations.
Before you apply for a mortgage to secure a house after filing for bankruptcy, you should try to work on your credit. You may not have enough time to work on a thorough credit repair. However, you can do the basic ones to help improve your credit a little. The first thing to review your credit report for errors. Have you seen an account you do not recognize or does your report indicate that you have missed a payment when you do not remember missing one? You can file a dispute to clear these errors. This can also help you to improve your score a little more.
Make sure that you do not begin to accumulate debt right after your bankruptcy discharge. Some people apply for new credit to build their credit history. If you decide to go in for a credit card for that purpose, make sure you use it responsibly. Try to spend within your budget. Pay your balances on time and never max out your credit card. When you improve your credit score, you can get mortgage offers at lower rates. It also shows that you can manage your finances well.
When you apply for a mortgage after bankruptcy, be prepared to submit all the necessary documents to facilitate the application process. Lenders may want to know why you filed for bankruptcy and you will need to provide files to support your reason.