How Does Bankruptcy Affect Your Credit Score
Even if youve waited the appropriate seasoning period to apply for a home loan, you still need to repair your credit to qualify. Whether youre applying for an FHA loan, a VA loan, or a conventional loan, youll most likely need your credit score to be somewhere between 580 and 640.
On the plus side, a Chapter 7 bankruptcy filing automatically wipes out your debt, so your amounts owed category can rebound pretty quickly. This also helps your debt to income ratio when it comes time to apply for a loan.
But a bankruptcy can cause your credit score to drop as much as 240 points, and it takes time to bring it back up. How long? A Chapter 7 filing remains on your credit report for ten years, while a Chapter 13 stays there for seven years.
Contact The Bankruptcy Trustee
If you find a property that you want owned by a debtor in bankruptcy, contact or have a real estate lawyer reach out to the Chapter 7 or 11 trustee. To find the name of the trustee handling the estate for that debtor, you can find the name of the trustee on Pacer.gov. The contact information for every standing Chapter 7 trustee is on Justice.gov.
The trustee may be interested in selling the property. Sometimes, if the trustee can sell the property without a broker, they may be interested in providing a larger distribution to creditors by avoiding a brokers fee. Often times, the trustees attorney may have insight on the terms required to obtain the trustees consent and bankruptcy court approval, such as when a bankruptcy property is lived in by the debtor after a divorce leads to a bankruptcy.
Look At Fha First To Buy Again After Bankruptcy
The FHA loan program normally states at least two years need to have passed after the bankruptcy discharge to qualify for a new loan.
But recently introduced was FHAs Back to Work program, which allows borrower to buy again just one year after bankruptcy.
This program aims to help borrowers whose bankruptcy was due to the economic downturn of 2008. To qualify for this program, you must have lost 20% of your income for 6 months prior to filing for bankruptcy. In addition, you must show perfect rent history and re-established credit for the 12 months prior to your loan application.
In addition, you must be working with adequate income to qualify for the new FHA loan. For those who meet the guidelines of this program, its a great way to get back into a house after bankruptcy.
Dont Scare Off The Bankruptcy Trustee With Contingencies
The bankruptcy trustee will be more likely to accept the offer with the fewest contingencies, such as a financing contingency or inspection contingency. Indeed, repair contingencies are very difficult for a trustee to perform because, in most cases, the trustee does not have any money in the estate to perform such repairs. Even further, hiring someone to perform a repair may require court approval, which requires considerable attorney time, likely costing thousands of dollars. The benefit to the estate and its creditors of hiring such professionals can be questionable, so avoiding these complications will make your offer stronger.
What If You Had Both A Bankruptcy And A Foreclosure
You can still get a mortgage even after having both a bankruptcy and a foreclosure you just need to clarify at which point each seasoning period begins.
This can be a little tricky since some of the factors in both cases overlap with one another. Really, different lenders can view things in different ways, but generally speaking, the seasoning date should begin when you are no longer responsible for the debt.
So if your foreclosure was discharged with a Chapter 7 bankruptcy, your seasoning period would last for two years following the discharge of the bankruptcy, not from the date of the foreclosure.
Its always best to review your personal credit report with your mortgage lender to ensure youre interpreting it correctly.
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Buying A Home After Bankruptcy
If youve declared bankruptcy in the past, know that youre not alone. Further, know that your situation is nothing to be ashamed of. No one wants to declare bankruptcy sometimes, it may be the only solution to a difficult situation. If youre now thinking of buying a home after bankruptcy, you may be wondering how it would work.
I see lots of clients after their bankruptcy has been discharged or their consumer proposal has been completed. Theyll often tell me they dropped in at their bank branch or another mortgage broker, but they have either been turned down or found that their calls for information dont get returned. This may give the mistaken impression that there is nothing to be done. Dont be discouraged! You can and will put this behind you. You just need the right planning and commitment.
Contact An Experienced Bankruptcy Attorney In California
The bankruptcy attorneys at Talkov Law are skilled in the areas of:
About Scott Talkov
Scott Talkov is a real estate lawyer, business litigator and bankruptcy lawyer in California. He founded Talkov Law Corp. after of experience with one of the region’s oldest law firms, where he served as one of the firm’s partners. He has been featured on ABC 7, CNN, KCBS, and KCAL-9, and in the Los Angeles Times, the Orange County Register, the San Diego Union-Tribune, the Press-Enterpise, and in Los Angeles Lawyer Magazine. Scott has been named a Super Lawyers Rising Star every year since 2013. He can be reached about new matters at or . He can also be contacted directly at .
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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.
Fha Loans After Chapter 7 Bankruptcy
Fortunately, you can qualify for an FHA loan following Chapter 7. But be prepared to wait a while before youll get approved.
Bankruptcy will not stop you from making a large purchase, like a home, in the future. So yes, it is possible to obtain an FHA home loan after Chapter 7 bankruptcy, says Jeremiah Heck, a debt and bankruptcy attorney.
Typically, you have to wait for a minimum of two years after your bankruptcy is approved by the courts to be eligible.
But in some cases, the mortgage lender may require additional time.
For instance, some banks tend to ask potential borrowers who filed Chapter 7 bankruptcy to wait a total of three years before they are eligible, adds Heck.
In addition to the waiting period, youll need to meet other FHA loan requirements. These typically include:
- Down payment of 3.5% or more
- Debttoincome ratio below 50%
- Steady income and employment
- Income source expected to continue for 3 years
Avoiding any new debts after bankruptcy for example, a car loan or personal loan can help your chances of qualifying for an FHA mortgage once the 2year waiting period is over.
Requirements for other mortgage loan types
An FHA loan isnt the only loan type that can get you on the fast track to homeownership. VA loans also have a minimum waiting period of two years from the date of your Chapter 7 discharge.
To qualify for a VA loan, you need to be an eligible veteran, service member, or member of an associated group .
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Buying A House After Your Bankruptcy Case Will Probably Come Easier And Quicker Than You Think
By Carron Nicks
Eliminating debt by filing a bankruptcy case can make it easier for you to afford a home purchase, but it will also impact your ability to get a loan. So don’t plan on qualifying for a loan the day after your bankruptcy dischargemost lenders won’t be willing to take a chance on you immediately.
Even so, there’s a good chance you’ll qualify for a mortgage loan sooner than you think. Learn how the following will impact your ability to buy a house:
- your post-bankruptcy credit score, and
- qualification requirements of government and private lenders.
Mortgage After Bankruptcy With A Mainstream Or Prime Mortgage Lender
With a prime lender, you will have the luxury of being able to purchase a home at the best rates available. In addition, a mainstream lender will allow you to use a down payment of as little as 5% of the purchase price of the home. One thing to note: if your down payment is less than 20% of the homes purchase price, lenders will require default insurance through either CMHC or Genworth the fee charged will be added to your mortgage amount .
In order to qualify with a prime lender after bankruptcy, you need to fulfill the following criteria:
1. The down payment must be from your own resources either in a savings account, an RRSP, investment account, and so on. As of February 16, 2016, you need to have at least 5% available for the first $500,000 of your purchase, 10% for any amount over $500,000. However, 10% of the purchase price is better, and will give you more options.
2. To work with a prime lender, you need to wait for a minimum of two years after dischargeof your bankruptcy. Please note that this is a best case scenario, not a sure thing. Each lender has their own criteria. A few will do a mortgage two years after, several more require three years, and some want you to wait five or six.
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Tips On How To Build Your Credit After Bankruptcy If You Want To Buy A House
If you want to increase your chances of getting approved for a mortgage after a bankruptcy filing, you need to improve your credit score and overall financial situation. Remember that a bankruptcy will still serve as black mark against you when applying for a mortgage. However, if you can prove that you are already more responsible/capable in making your payments leading to your mortgage application, your chances of getting approved are higher.
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.
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Can I Buy A House 1 Year After Chapter 7 Discharge
In most cases, theres at least a twoyear waiting period from your Chapter 7 discharge date until you can be approved for a home loan.
There are some limited circumstances in which you can obtain a loan after one year from the discharge, explains Andrea Puricelli, production resources engagement manager for Inlanta Mortgage.
But thats only if the bankruptcy was caused by extenuating circumstances beyond your control and youve since exhibited an ability to manage your financial affairs responsibly.
Such extenuating circumstances could apply if you were forced into bankruptcy due to a serious illness or major job loss or income reduction.
But in most cases, it takes more than a year to recover after declaring bankruptcy. So most home buyers will have to wait two years or more before applying anyway.
Review & Repair Your Credit
Following severe financial distress that leads to bankruptcy, your credit profile may contain a large number of negative items both correct and incorrect. Completing a bankruptcy should discharge the remaining balances on your debts, balances should be zeroed out and collection accounts should be closed.
With that in mind, you need to review your credit report to make sure everything has been updated correctly following the completion of your filing. If you find items that you think are outdated or need to be removed, then you should consider going through the process.
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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 614 posts on this blog.
Anita is a residential Real Estate Agent in Warner Robins Georgia, with Coldwell Banker Access Realty 953-8595, aiding buyers and sellers with all their real estate questions on her Warner Robins blog.
After A Chapter 7 Bankruptcy Discharge
In most cases, you’ll need to wait two years from the date of your Chapter 7 bankruptcy discharge before you’ll qualify for this loan. Keep in mind that a discharge date isn’t the same as the filing date. The court sends out the bankruptcy discharge paperwork just before your case closes.
- Meeting credit requirements won’t be as much of a hurdle as you might think. If you open new credit accounts after your bankruptcy, you’ll need to show that you’ve established a good credit history by paying your payments on time.
- How to avoid the credit score requirement. FHA has another ruleyou can qualify by choosing not to open any credit accounts after bankruptcy.
- Speeding up the process using the 12-month exception. At times, people file for bankruptcy due to no fault of their own. If you fit into this category and can demonstrate that filing for bankruptcy was beyond your control, you might be able to reduce the waiting period to twelve months. Additionally, you’ll need to show that you’ve handled your financial affairs responsibly after the bankruptcy.
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Timing To Buy A Home After Filing Bankruptcy
You need to consider these factors before you start your house hunt:
- Did you file a Chapter 7 bankruptcy? Your debt will be discharged, but you may face higher interest rates and difficulty finding a mortgage loan while you still have bad credit.
- Did you file a Chapter 13 bankruptcy? You will have a repayment plan that must be repaid on schedule. Can you save a down payment while making these monthly payments?
- Did you gain more credit card debt for a medical bill post-bankruptcy?
- What home loans, interest rates, down payment, and credit score requirements does the mortgage lender require?
- Do you have a down payment?
- What type of loan do you want?
How Resolve Can Help
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How Soon After Chapter 7 Bankruptcy Can I Buy A House
Chapter 7 bankruptcy is the most common type of bankruptcy filed by Americans. Out of over 733,000 bankruptcy petitions filed in 2019, around 62% were filed under Chapter 7. In Chapter 7 bankruptcy, the non-exempt assets are liquidated to pay off creditors and the remaining unsecured debts are discharged or wiped away.
Many people prefer Chapter 7 because the process takes only 4 to 6 months until your debts are discharged. You can start clean, debt-free as long as you do not owe any nondischargeable debts like tax debts, student loans, and child support payments. The downside is that Chapter 7 bankruptcy can majorly hurt your credit score by 130 -150 points if you have a lower credit score, and by up to 240 points if you have a high score.
If you filed for Chapter 7 bankruptcy, the waiting period to buy a house starts from the time the judge discharges or dismisses your bankruptcy petition.
If you plan on buying a house after a Chapter 7 discharge using a conventional loan , the waiting period is at least four years to qualify. If you are not qualified to get a government-backed mortgage, then your only option is to wait it out.
A government-backed loan means that a government agency is guaranteeing your loan, making you less of a risk as a borrower. While the government is not lending you the money, it is giving the lender a certain sense of security just in case you default on the loan.