You can buy a home after bankruptcy! In tough economic times, many clients worry about the impact of filing bankruptcy on their ability to purchase a home in the future, but subject to several guidelines, a debtor can obtain a mortgage and buy a new home after bankruptcy.
Federal Housing Administration Guidelines
The Federal Housing Administration (FHA) has set out guidelines on this subject. The Guidelines have a required waiting period for those who have filed bankruptcy. If a debtor has filed a Chapter 7 bankruptcy, the debtor must wait two years from the date of discharge before applying for an FHA loan. If a person has filed a Chapter 13 bankruptcy, he can apply for an FHA loan after completing one year of his Chapter 13 payments. The Chapter 13 debtor must also get permission from the bankruptcy court before entering into a new mortgage loan.
Fannie Mae Guidelines
Fannie Mae also has a set of Guidelines that address waiting periods after bankruptcy. For a Chapter 7 debtor, the debtor must wait four years from the discharge or dismissal of his bankruptcy case. A Chapter 13 debtor, on the other hand, must wait two years from the date of discharge, or four years from the dismissal of the case. In both Chapter 7 and Chapter 13 cases, there is an exception for extenuating circumstances that would reduce the waiting period. These exceptions are rarely granted.
In the waiting period, it is a good idea for debtors to take steps to begin rebuilding their credit in order to qualify for a mortgage and to get a more attractive interest rate. It is also important to remember that just because you can apply for a mortgage after these waiting periods run, it is not always the best idea to do so, depending on your individual circumstances. Sometimes renting for a longer period and saving for a down payment or rebuilding your credit score may be more beneficial.
If you have questions about filing for bankruptcy, please contact one of our offices and set up a free consultation today.
Kathryn Davis is an attorney at the Bond & Botes Law Offices in Huntsville and Decatur, Alabama. She holds a Bachelor of Arts from Auburn University, and a Juris Doctorate from Samford University, Cumberland School of Law. She is passionate about utilizing the bankruptcy process to help clients navigate through what is usually some of the lowest points in their lives. Read her full bio here.