Homeownership is a big part of the American dream for many individuals and families. But, if you are already struggling beneath a burdensome debt load, it may seem out of reach.
Bankruptcy can be a workable solution to your debt problems. Even so, many consumers are apprehensive about bankruptcy, wondering how it will affect their ability to obtain a home loan in the future. Fortunately, with the right credit-building strategies, bankruptcy does not have to unduly impact your ability to get your own home.
As Little As One Year After Chapter 13, Two After Chapter 7 for Mortgage Eligibility
It can come as a shock when bankruptcy filers learn that a bankruptcy may stay on their credit report for seven to ten years. But, merely having a bankruptcy in your credit history by no means disqualifies you for a mortgage. In fact, you may be eligible for a mortgage in as little as one year following your bankruptcy.
If you filed for Chapter 7 bankruptcy (the most common type of consumer bankruptcy in which most types of debts are fully discharged) you are eligible to apply for a mortgage in two years for an FHA loan or a VA loan. Eligibility for a conventional mortgage loan (one that is not government insured) takes four years after a Chapter 7 bankruptcy.
If you file for Chapter 13 bankruptcy, in which debts are consolidated and fully or partially repaid over a three to five year term, you may obtain a mortgage even sooner. You can be eligible for an FHA or VA loan in as little as one year after filing, and a conventional loan in two years.
While the timeframes outlined above are industry standards, sometimes lenders will make an exception and approve a loan earlier if there were extenuating circumstances out of the lender’s control that caused the bankruptcy. Unemployment by the primary wage earner, the death of a spouse or medical bills resulting from an unexpected injury are all examples of one-time occurrences that can cause bankruptcy and may entitle a borrower to a shorter waiting period for a mortgage. Keep in mind, however, that it is rare for a bankruptcy filer to obtain a mortgage in a shorter amount of time than the industry standards; those who do get mortgages more quickly have backed up their hardship claims with extensive documentation.
Getting a Mortgage Not Guaranteed – Build Your Credit to Improve Your Odds
Getting a mortgage after filing for bankruptcy is not simply a matter of waiting out the eligibility timeframe: for anyone who wants a home loan, success depends on strength of credit. This means that if you want to obtain a mortgage as soon as you are eligible after filing for bankruptcy, you must work hard to build credit. Get a credit card and pay off the balance immediately; start saving at least 10 percent of your take-home pay to establish a pattern of saving and to build toward a large down payment; pay rent and utility bills on time. If you follow these credit-building steps, your credit will likely be strong enough to obtain a mortgage as soon as you are eligible.
A bankruptcy by no means has to derail your dream of owning a home. On the contrary, it can help you escape the debt that is holding you back and set you up to build toward a new future of homeownership. If you are struggling with debt, talk to a Tampa bankruptcy attorney today to learn more about what bankruptcy can do for you.