If you are worried about buying a house after bankruptcy, put those worries aside. Debtors may be required to wait two years or so after filing bankruptcy before he or she can qualify for a conventional mortgage; however, debtors can use that time to their advantage. Saving money for a down payment, developing and living within a budget, and working to improve credit ratings are a few of the steps debtors can take while they are preparing to buy a house after bankruptcy.
Your financial life will not end after filing bankruptcy. You can own a home, buy a new car, take vacations, and obtain credit if you choose to do so. Buying a house after bankruptcy is not impossible; however, when you are eligible to qualify for a mortgage depends largely on the type of mortgage you are applying for and the chapter of bankruptcy you filed.
Lenders have different regulations and rules regarding the amount of time you must wait between filing bankruptcy and qualifying for a mortgage. Some lenders have internal standards in addition to the mortgage industry standards that they follow regarding buying a house after bankruptcy.
Below is a summary of how long you must wait after your bankruptcy case is closed to be eligible to qualify for various types of mortgages.
Some individuals who are buying a house after bankruptcy apply for a subprime loan because those loans are not backed by the government. While a subprime loan may be easier and quicker to obtain, these loans have higher interest rates and closing costs. Subprime lenders typically require a larger down payment. In most cases, if debtors wait the required time to obtain a conventional loan, they will be in a better financial position in the long-term.
Bankruptcy can positively affect your credit score and actually may make it easier to find a lender than before you filed for a bankruptcy case. Prior to bankruptcy, you were trying to pay debts that you could not afford. Those debts are now discharged giving you more money each month to pay a mortgage payment. This financial situation looks more positive to a lender than your financial situation prior to your bankruptcy. Lenders look at debt-to-income ratio as a factor when deciding whether to approve a mortgage loan. Your debt-to-income ratio is lower now that you have filed bankruptcy and discharged most, if not all, of your debt.
Furthermore, your bankruptcy case helps to clean up your credit history by discharging debts that are the subject of outstanding collections and prevents creditors from continuing to add negative information to your credit report. It is true that a bankruptcy filing will cause a temporary decrease in your credit score; however, most debtors see their credit score increase within a year or two after completing bankruptcy. This corresponds with most of the waiting periods to be eligible to qualify for conventional loans.
If you have more questions about buying a house after bankruptcy, take advantage of a free bankruptcy consultation. We will not only cover this concern, but any other that you may have about filing a bankruptcy case.