Your Path to Buying a House After Bankruptcy Roger Odoardi If you’ve gone through, or have recently filed for bankruptcy, then it may feel like the odds of buying a home are stacked against you. Think again. Buying a house after bankruptcy is not impossible—although it sure may seem that way at first. While time is the only true medicine for recovering from a bankruptcy, there are steps you can take now to help kick start the healing process. With a little patience, some effort and ingenuity, you’ll be able to experience the joys of home ownership in no time. Bankruptcy is not a death sentence There are two essentially two types of bankruptcy: Chapter 13 and Chapter 7. A Chapter 13 bankruptcyis defined as “a reorganization designed for debtors with regular income who can pay back at least a portion of their debts through a repayment plan.” A Chapter 13 bankruptcy remains on your credit report for seven years. A Chapter 7 bankruptcy is defined as “a liquidation designed to wipe out your general unsecured debts such as credit cards and medical bills.” A Chapter 7 bankruptcy stays on your credit report for 10 years. Declaring Chapter 7 or Chapter 13 bankruptcy can be detrimental, if not downright devastating to your financial status, especially for any home buying plans you may have. This is because bankruptcy affects your credit history, and a poor credit history can seriously hamper any and all home buying efforts. But remember, it’s only a matter of time before things start to look better. It used to be after filing for bankruptcy you’d have to wait years upon years before applying/re-applying for a mortgage loan. However, mortgage guidelines related to bankruptcy have relaxed in recent years. The waiting periods differ by mortgage type, as well as the type of bankruptcy you’ve experienced. Current waiting periods before buying a house after bankruptcy: VA 2 years from chapter 7 discharge. 1 year of on-time payments for a Chapter 13 Low Down Payment Gov’t 2 years from chapter 7 discharge. 1 year of on-time payments for a Chapter 13 USDA 3 years for both chapter 7 & 13 Conventional 4 years for chapter 7 2 years for chapter 13 The above time periods don’t start automatically, however. There is one thing in particular you must do before the clock starts ticking. There’s also a few things you should do in the wake of your bankruptcy if you want to one-day own a home. Steps to take after bankruptcy and before buying a house 1. Discharge your bankruptcy The first and most important thing you need to do is discharge your bankruptcy. A bankruptcy discharge releases you from liability for certain specified types of debts and prohibits creditors from taking any form of collection action against you on discharged debts (ie. Any debts owed forgiven through bankruptcy). It also protects you against any and all communication from creditors such as telephone calls, letters, and personal contacts. A bankruptcy discharge will take a varied amount of time, depending upon which type of bankruptcy you’ve filed. The U.S. Court System explains the discharge process, including waiting periods, in this FAQ. Once you’ve discharged your debt then the clock starts ticking. 2. Organize/Rebuild your credit The process of repairing your credit history starts with knowing every single red mark on your credit report. This is an important because every once in a while a debt that has been paid will mysteriously remain on your credit report, and can therefore adversely affect you as you go to apply for a home mortgage loan. Examining and organizing your credit report, followed by contacting the credit agency in case of any errors, is crucial in the recovery process. Also, if you’re not already, be sure you’re following these important tips on how to repair poor credit before securing a home loan. Building your credit back up is crucial to the home buying process and will show a potential lender that you’re serious about rectifying your past history. 3. Wait As mentioned above, there is a certain time period you must wait before buying a house after bankruptcy. The key here is to be patient and proactive about improving your financial situation. There may be lenders out there who may be willing to work with you after all. According to this article in the Wall Street Journal, there are several nonbanking lenders who are helping risky borrowers get mortgage loans, even if they have experienced a bankruptcy, a short sale or foreclosure. Again, patience is key. These types of mortgage loans may not be ideal for you, so be sure you know what you’re getting into before applying for a mortgage loan. So as you can see, buying a house after bankruptcy is in fact achievable. It’s just a matter of following the necessary steps and making the appropriate financial decisions. And if the time periods seem a bit too long, remember that good things come to those who wait. At Blue Water Mortgage we have the knowledge and ability to get you the loan that’s right for you—no matter the circumstances or time limit. Contact us today if you’ve experienced a bankruptcy and are ready to re-enter the real estate market. We’ll our best to help you re-emerge from bankruptcy and apply for a home mortgage loan. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.