Deciding to file for bankruptcy is an extremely emotional and stressful time in a person’s life. Once you file, you will probably end up wondering exactly how this will affect your life in the future. Filing for Chapter 7 bankruptcy in Kentucky offers those in a financial crisis a fresh start. However, many people are unsure of whether or not buying a house after bankruptcy is an option.
At O’Bryan Law Offices, we understand how important it is to get answers to your bankruptcy questions. Because we dedicate our practice largely to bankruptcy in Kentucky, we have extensive experience and knowledge of all related aspects. While bankruptcy does offer a fresh start for many people, it also complicates certain aspects of your future. If you filed for Chapter 7 bankruptcy and look forward to your future, we’re here to help. O’Bryan Law Offices will help you navigate through your new financial life after bankruptcy. To set up your free consultation, give us a call at 502-400-4020 today.
How Long Do I Have to Wait Before Buying a House After Bankruptcy?
First, we want to stress that buying a house after bankruptcy is a possibility. Just because you declared either Chapter 7 or Chapter 13 bankruptcy in Kentucky, this does not mean you cannot buy a house in the future. What matters is which type of bankruptcy you filed for, as well as how hard you’re willing to work to build your credit score back up. Sometimes, your waiting period is as short as 1 to 2 years. In other cases, you might have to wait as long as 10 years to begin the process of buying a house. In this section, we explain how Chapter 7 and Chapter 13 bankruptcies affect buying a house after bankruptcy.
Buying a House After Chapter 7 Bankruptcy
In a Chapter 7, individuals seek to eliminate their debt by liquidating their assets. Once the process concludes, they emerge with a fresh start, but with damaged credit. In order to determine how long after a Chapter 7 declaration you can apply for a loan, we must consider which type of loan you want to apply for.
- FHA Loans: Your bankruptcy declaration must have been dismissed or discharged 2 years prior to the application date. In some cases FHA loans receive approval after only 1 year.
- VA Loans: These are excellent options for veterans. The waiting period is 2 years after a dismissal or a discharge.
- Conventional Loans: These have a slightly longer waiting period. The waiting period is at least 4 years from the date you filed for Chapter 7, and 2 years from the date of your discharge.
Buying a House After a Chapter 13 Bankruptcy
In a Chapter 13, individuals reorganize their debt, and commit to repayment plans which are very strict. These individuals must make payments to their creditors, but they avoid liquidation of their assets, and their credit does not suffer as much.
- FHA Loans: The waiting period is 1 year after your dismissal, assuming that you make your payments on time and receive written permission from the court responsible for your case.
- VA Loans: Fortunately, there is no waiting period for Chapter 13 bankruptcies when it comes to VA loans. You can even apply for a mortgage as you work out your plan of repayment with the court.
- Conventional Loans: The waiting period is 4 years from your filing date, and 2 years from your discharge date.
How Long After Bankruptcy Can You Get a Mortgage?
Depending on your specific situation, you might end up waiting anywhere between 1 and 10 years. As long as you meet the above waiting period requirements that match your situation, you may apply for your mortgage. Bankruptcies stay on your credit report for quite some time. That’s why it’s extremely important to remember that boosting your credit score is one of the better ways to speed up the process. Different mortgages have different minimum score requirements. In the next section, we explain the best steps to take while buying a house after bankruptcy.
How to Apply for a Mortgage After Bankruptcy?
Applying for a mortgage is an important step in buying a house after bankruptcy. However, many people find this process confusing and complicated. That’s why our experienced Kentucky bankruptcy attorneys are here to help. We’ve included a step-by-step guide to applying for a mortgage below.
- Diligently repair your credit score. Bankruptcies greatly affect your credit report in a negative way. Mortgage loans are still possible, but you must meet your lender’s minimum score requirements. Take some time to build your score back up after a bankruptcy. Re-establish your credit by getting a credit card and paying off your debts each month. Direct all extra cash toward paying your debts. Also, pay all of your bills on time. This is extremely important, as it’s the fastest and easiest way to raise your credit score.
- Explain your situation to your lender. While this isn’t a requirement, lenders see their mortgages as a risk. Explain to them why bankruptcy was a necessary step for you, and follow up with the steps you have taken to prevent one in the future.
- Seek preapproval. Once you reach the end of your waiting period and have your finances in order, seeking preapproval is an important step. These letters from lenders explain which homes are in your price range, and help to narrow your search. They also let real estate agents know that you can afford the home you make an offer on. Keep in mind that your lender will likely ask for the following documents.
- W-2 forms
- Bank statements
- Respond to inquiries from your lenders. Lenders often contact people about specific things on your credit report. Always be open and honest with lenders, as this increases your chances of getting approval.
How to Reestablish Credit After Bankruptcy
We mentioned before that reestablishing your credit is an important step of buying a house after bankruptcy. In this section, we’ll go into a little more detail on how exactly you can accomplish this.
- Always check your credit reports. Certain negative parts of your credit report will age off of the report. If your report shows any mistakes, dispute them right away. This will avoid credit drops that you don’t deserve. It also helps to understand the credit score ranges and how they impact certain loans and interest rates.
- Track your credit score on at least a monthly basis. Pick one type of credit to track, and track that one each month.
- Seek an appropriate method of building credit that works for your situation. Credit products such as secured loans or secured credit cards help to improve your financial profile. This makes you look more desirable to lenders.
- Create a budget, and stay on top of it. We offer credit counseling for those wishing to find better ways to budget and stay on top of their debt.
- Practice good credit habits. Be attentive to your payments, and pay on time. Try to keep your credit card balances low compared to their limits.
Thinking About Buying a House After Bankruptcy? Give Us a Call
With all this in mind, you’re probably ready to consider buying a house after bankruptcy. If so, we invite you to speak with our experienced bankruptcy attorneys for debt counseling in Kentucky, or for advice on restoring your credit. For more information, or to set up a free consultation appointment, give us a call at 502-400-4020.