A common myth about filing bankruptcy is that you will never own a home again. While it may take a few years to qualify for an affordable loan, it is possible to buy a home after a Chapter 7 bankruptcy. In this blog, our New Bedford bankruptcy lawyer discusses how Chapter 7 impacts buying a home after bankruptcy.
Waiting Periods for Home Loans After a Chapter 7 Bankruptcy
A Chapter 7 remains on your credit report for 10 years. However, you may qualify for a home loan before your bankruptcy falls off your report. There are waiting periods for some types of home loans after bankruptcy. Average waiting periods for loans include:
- Conventional Home Loans – 2 to 4 years
- Federal Housing Administration (FHA) Loans – 2 years
- Veterans Affairs (VA) Loans – 2 years
- USDA Home Loans – 3 years
Some lenders may reduce the waiting period if you can establish the reasons you filed for Chapter 7 were circumstances beyond your control or extenuating circumstances.
Some individuals apply for loans from subprime lenders. However, non-government-backed mortgages have a steep price. Lenders may require a substantial down payment, and the interest rate could be much higher than a conventional loan. Instead of overextending your finances, working on your credit and other things you can control during the waiting period for a home loan after Chapter 7 is often better.
How Can I Buy a House After Filing Chapter 7 in New Bedford, MA?
You can buy a home after Chapter 7 bankruptcy with planning and work. Steps to take after Chapter 7 to prepare for buying a home include:
Create a Budget
A household budget is the best way to manage your finances and save for a new home. Chapter 7 discharges most unsecured debts. Therefore, if you avoid significant credit and manage your income, the year or two after Chapter 7 could be the best time to save for a new home.
Use Credit Wisely
Rebuilding your credit score is crucial if you want to buy a home after bankruptcy. However, you must use credit wisely. You might want to begin with a secured credit card with a low balance. Use one or two credit cards to pay monthly bills and pay off the balance each month.
Review Your Credit Reports
You can request free copies of your credit reports from all three major credit reporting agencies every 12 months. Reviewing your credit reports after you complete Chapter 7 to ensure lenders report the bankruptcy correctly is essential. Review your credit report each year and correct errors immediately. Errors can lower your credit score, making it more challenging to obtain a home mortgage.
Consider a Car Loan
A car loan may be easier to obtain than a home loan. It can help you establish a positive credit history. However, be cautious. Do not over-extend your finances, and make all payments before the due date. A repossession on your credit report after bankruptcy will hurt your chances of qualifying for a home loan.
Obtain Pre-Approval
When you are ready to apply for a home loan after Chapter 7, get mortgage pre-approval. Pre-approval demonstrates to sellers that you can secure a mortgage. Pre-approval also sets your limit for a home and helps you establish your budget.
When you apply for pre-approval, write a letter to the lender explaining your reasons for filing bankruptcy, how you addressed those reasons, and how your finances have improved. A letter allows you to address any red flags that might appear on your loan application or credit report.
Contact Our New Bedford Bankruptcy Lawyers for More Information
There is life after bankruptcy. At Logan A. Weinkauf, P.C., our New Bedford bankruptcy attorneys work with you to develop a bankruptcy strategy that provides the best foundation for you to recover and rebuild after a financial crisis. Call us today to discuss your situation with a Massachusetts bankruptcy lawyer.