Can You Buy a House After Bankruptcy? (2024)

FAQs

Will bankruptcy affect my ability to buy a house? ›

Can You Get A Mortgage While In Bankruptcy? The short answer to this question is no. All major lenders and mortgage investors require that the bankruptcy be either discharged or dismissed before application. Moreover, many loan types require a waiting period before you can even apply.

There is a two-year waiting period for an FHA loan application after you receive a Chapter 7 bankruptcy discharge. The two-year clock begins counting down on your discharge date. Use the next two years to improve your credit score, avoid late payments, save up extra cash, and improve your credit profile overall.

For example, you can't discharge debts related to recent taxes, alimony, child support, and court orders. You may also not be allowed to keep certain assets, credit cards, or bank accounts, nor can you borrow money without court approval.

You'll have to wait at least until all your debts have been repaid according to your Chapter 13 schedule, which will be either three or five years. However, bankruptcy can stay on your credit report for up to 10 years, which may make it difficult to get a loan with favorable terms.

Depending on whether you filed Chapter 7 or Chapter 13, it'll take two or four years to qualify for a conventional mortgage, one or two years for FHA or VA loans, and one or three years for USDA loan.

Credit score and mortgages

The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

However, you'll need to wait between one and four years after a bankruptcy to get a standard mortgage, such as a conventional, FHA, VA or USDA loan. The waiting periods for these programs depend on the type of bankruptcy that you filed.

How long does it take to rebuild credit after Chapter 7? A bankruptcy stays on your credit report for 10 years. However, when a person files Chapter 7 liquidation bankruptcy, the debtor immediately and dramatically reduces their debt-to-income ratio, which could set the stage for a rising credit score in a year or two.

Depending upon where you live, you may be able to remain in your home for six months or more after your Chapter 7 bankruptcy has been finalized. Once your bankruptcy is discharged, you will need to find another place to live.

Under Chapter 7, you may lose the first tax refund that's due after discharge, or some of it, because it's a refund of money earned before discharge. If some of the refund is from income earned after filing for bankruptcy, you keep it.

What debt goes away after bankruptcy? ›

For instance, Chapter 7 bankruptcy covers or "discharges" credit card balances, medical bills, past-due rent payments, payday loans, overdue cellphone and utility bills, car loan balances, and even home mortgages in as little as four months. However, not all obligations go away in Chapter 7.

The truth is that bankruptcy can definitely tank people's credit scores. But in most cases, these people already have a bad credit score because of how much debt they have. In fact, the average credit score after a bankruptcy discharge can vary between 400 and 530.

Mortgage lenders will want to know your financial situation has fully recovered and that you'll be able to manage on-time payments with a new mortgage. As such, lenders enforce a minimum waiting period or “seasoning period” before borrowers can apply for a mortgage after bankruptcy.

Most banks will not give you a current account until you are discharged from bankruptcy. Afterwards, you should be able to open an account with any bank or building society. You are normally discharged 12 months from the date of your bankruptcy order.

You can buy a house after bankruptcy, but you'll have to clear a few hurdles if you need to get approved for a mortgage. The two main challenges are rebuilding your credit and finances, and getting through any waiting period your lender may require.

Lenders generally require a waiting period of between one and five years from discharge or dismissal — and up to seven following foreclosure — before they'll approve you for a home equity loan. This is because they want to be sure you've righted your finances and can manage new debt.

Bankruptcy can stop the foreclosure process in its tracks. As long as the foreclosure sale hasn't already occurred, you'll likely be able to stop the foreclosure immediately. The only exception is if you've filed for bankruptcy multiple times during the previous year.

How Long After a Debt Settlement Can You Buy a House? There's no set timeline for how long it takes to get a mortgage after debt settlement. Your ability to qualify for a mortgage will depend on how well you meet the lender's requirements on the issues raised above (credit score, DTI, employment and down payment).