Can You Buy a Home in Champaign County After Bankruptcy?

Dealing with a bankruptcy can be a strain on your emotions, as well as your credit. Whether you file for a Chapter 7 or Chapter 13 proceeding, your credit is likely to be affected. You'll reduce or eliminate your debt, but in turn, your ability to get credit in the future will be affected.

Even so, purchasing a home in Champaign County after bankruptcy is not impossible to do. But it will require some planning and preparation, as well as a lot of patience.

How Long Until You Can Buy a Home?

One big question for a lot of people is how long you have to wait after bankruptcy to buy a home?

To get a home loan, your bankruptcy has to be discharged. A discharge releases you from any legal liability on debts that a court has determined to be discharged and prevents creditors from trying to collect on them.

A bankruptcy discharge of debts is one component of the bankruptcy process, but it is not the end of the bankruptcy court case. Lenders will want to see your discharge before approving your next home mortgage. Bankruptcy court cases usually conclude pretty soon after the discharge is approved.

What Does Your Credit Report Look Like?

Once you have filed, you will want to monitor your credit report. Bankruptcy filings are kept for as long as ten years but there is incorrect perception that you have to wait that long before you can get a new loan.

Although you may want your credit report to be accurate, making sure you're not overspending and monitoring for any debts that have been discharged or paid is also key if you plan on getting a mortgage.

In addition to addressing any outdated and invalid information, make sure to rebuild your credit in the aftermath of a bankruptcy. In order to qualify for a mortgage post-bankruptcy, you need to show lenders that you've recovered and don't pose too much of a risk.

Although it's difficult to predict how any individual's credit score will be impacted following a bankruptcy, it is possible that your credit may be limited afterwards. Rebuild it with a tool such as a secured credit card or a small installment loan.

If you’re wondering how long the bankruptcy itself affects your credit, it can depend. A chapter 7 bankruptcy will usually stay on your report for up to 10 years after you file.

A chapter 13 bankruptcy tends to have less stigma in the lender's eyes because you make payments under a court-approved program. After seven years, a chapter 13 bankruptcy should be taken off your credit report.

How Long Should You Wait?

You may need a minimum of two years to right yourself after a bankruptcy, but there’s not a hard-set time you should wait before applying for a mortgage.

There are a few reasons for this. First, your credit can actually improve with two years' time. This means you'll not just qualify for a mortgage but also get better terms.

Even slight changes in your interest rate can have a huge impact on your monthly payments and loan payments.

Government-Backed Loans

If you faced bankruptcy and are under-resourced for a down payment, you may be able to secure an FHA or VA loan. The FHA doesn’t make the loans, but they guarantee loans from private lenders, reducing the risk for the lender.

There is a waiting period.

If you file a chapter 13 bankruptcy, you might be eligible for an FHA-backed loan in a year if you keep making all your payments in the bankruptcy on time. If you file under chapter 7, an FHA-backed mortgage might be an option in two years if you have met the credit requirements.

You'll need court permission to take on new debt while in chapter 13 bankruptcy.

The Department of Veterans Affairs offers qualified veterans and service members VA loans, which require two years' probation after a discharge under chapter 7 bankruptcy, as well as meeting minufimum 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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