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Home Loan After Bankruptcy

Declaring Chapter 7 or Chapter 13 bankruptcy limits your ability to borrow money or use a credit card. It also severely lowers your credit score, making it more challenging to get a home loan. However, take note that it is challenging; not impossible.

Of course, it will take some time to build back enough credit to take out a home loan, but you can do it! With some financial planning and patience, you can get back on track and buy a home even after you file for bankruptcy. We have provided a guide that may help you get back on your feet.

First, the bankruptcy must be discharged. If you are still in the bankruptcy process, credit counseling, or any other program that takes over your finances, you’re not ready to begin just yet. You have to be done with the process in order to begin your fresh start. 

Once your bankruptcy has been discharged, get a copy of your credit report. You are entitled to a free one every 12 months from the big credit rating agencies (Equifax, Experian, and TransUnion). You can get all three copies by visiting AnnualCreditReport.com. (Despite their names, don’t be fooled. Only AnnualCreditReport.com gives you your report with no strings attached.) Once you have your report, review it. If any debts that have already been paid or mistakes appear on your report, you need to dispute them on your credit report. The point of bankruptcy is to get a clean slate, and you can’t obtain that clean slate with mistakes on your report.

Take control of your finances by putting together a household budget. The point of this budget is to make the most of your fresh start by building good credit and avoiding the bad habits that caused your bankruptcy situation. Budget so you can pay all of your monthly expenses on time each month. You should also budget to save for annual expenses such as car registration, taxes, and holiday gifts. Putting money aside each month ensures that you’re not struggling to pay these bills when they’re due.

Start rebuilding your credit. If you can get a credit card, treat it like cash. Pay your card off each month. If you are unable to get a traditional credit card, an option you might want to consider is a secured credit card. A secured credit card is made for people trying to rebuild their credit. A secured credit card looks and acts like a traditional credit card. The only difference is that you make a deposit, and that deposit determines your credit limit. Basically, what you deposit is what you’re able to spend. The point of this credit card is to offset the previous negative information on your credit report by showing that you’ve adopted responsible money habits.

Lastly, you’ll have to wait. Patience is the hardest part. You have to prove, over time, that you’ve made changes to your spending habits so bankruptcy won’t happen again. A bankruptcy will stay on your credit report for seven to ten years, but its impact will lessen as times passes. You may be able to qualify for a home loan after one or two years. Additionally, after four or five years, you may be able to get your credit score back in the “good” range of 700 – 749.

With Chapter 7 bankruptcies, you may apply for a Conventional Loan after you’ve been discharged for four years, and you may apply for an FHA or VA Loan after two years. In some instances, you may be able to qualify after one year. With Chapter 13 bankruptcies, you may be able to qualify for a Conventional Loan after two years and you may qualify for an FHA or VA Loan after one year. However, regardless of which bankruptcy you possess, it is important is that you show a new history of timely payments.

Filing for bankruptcy doesn’t mean the end to your dream of homeownership. It is an opportunity to build a new financial future. By proving you’re now capable of handling your finances and building your credit score, you can create a strong credit history that can empower you with many opportunities. Think you’re ready to talk to a loan officer about what your options are? Call 1-800-759-7224 to contact a loan officer in your area.