Do you want to buy a home in Champaign County, but have previously filed for bankruptcy? A bankruptcy can be emotionally draining, as anyone who has been through one knows. There are also long-term financial consequences, including damage to your credit score and report. Although your debts are reduced or eliminated, you lose your ability to get credit in the future as a result.
Having said that, you can purchase a home after bankruptcy if you plan and prepare, and you have enough patience to do so.
How Long Until You Can Buy a Home?
Most people wonder how long it will be before they can buy a house after bankruptcy.
In order to obtain a mortgage, you must have your bankruptcy discharged. If you have been discharged from a particular debt, it means your liability has been lifted. Discharges also prevent creditors from collecting on discharged debts.
It is one of the components of bankruptcy, and it does not mean your bankruptcy will be over, but lenders will want to see it before you buy a home. Your bankruptcy is usually closed following the discharge.
What Does Your Credit Report Look Like?
Monitoring your credit report is important after bankruptcy. Bankruptcy filings may remain on your credit report for ten years, but it’s a myth that you cannot get a mortgage until that long has passed.
If you’re thinking about applying for a mortgage, you’ll want to verify that your credit report is accurate. Additionally, make sure to check for discharged or repaid debts.
Focus on rebuilding your credit after a bankruptcy as well as making sure there is no outdated or incorrect information. A bankruptcy can make it difficult to qualify for a mortgage, so you have to show lenders you’re ready and you’re not too risky.
You might not be able to get credit right after your bankruptcy. Rebuild your credit with secured credit cards or small installment loans.
Make sure you pay on time and in full every month.
What affects your credit after filing for bankruptcy depends on a number of factors. Chapter 7 bankruptcy stays on your report for up to ten years after you file.
Since chapter 13 bankruptcy is a court-approved repayment plan, lenders generally view it as less stigmatizing. Seven years after filing for chapter 13 bankruptcy, it should be removed from your credit report.
As you rebuild your credit in other areas, the bankruptcy will gradually diminish in importance.
How Long Should You Wait?
A good rule of thumb is to wait at least two years after bankruptcy before applying for a mortgage.
This is due to a few reasons. During that period, you have a pretty good chance of rebuilding your credit. As a result, you’re more likely to qualify for a mortgage as well as get better terms.
The amount you pay each month and over the life of your loan can be drastically affected by even a small change in your interest rate.
Government-Backed Loans
A FHA or VA loan may be an option if you have faced bankruptcy at one point and don’t have much money to put toward a down payment.
First-time home buyers or people with poor credit can benefit from FHA loans. While the FHA does not make the loans, it guarantees loans made by private lenders, reducing their risk.
There will be a waiting period.
Two years after a chapter 7 discharge, you may apply for a mortgage through the FHA, but you must meet certain credit requirements. In the case of a chapter 13 discharge, the FHA might guarantee your loan one year after you file if you make your payments on time.
If you purchase a home while you are in Chapter 13, you’ll need the court’s permission to take on new debt.
VA loans are backed by the Department of Veteran’s Affairs. They’re available to certain veterans and service members as well as some spouses. VA loans require a two-year waiting period after a chapter 7 discharge, and you’ll need to meet minimum credit score requirements.
Finally, if you’re thinking about a conventional loan, you might have to wait anywhere from 24 to 48 months to qualify following a chapter 7 bankruptcy. With a chapter 13 bankruptcy, most lenders will make you wait 24 months after discharge.
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