Can You Buy a House After Bankruptcy?

An average of 515,000 people filed for bankruptcy in each of the last 6 years. If you’re one of them, you’re not alone. Between exorbitant medical expenses, job losses, and high-interest credit cards, bankruptcy is often the best choice for people who can’t get out from under a mountain of debt.

Bankruptcy is intended to give you a fresh financial start, but it doesn’t help you rebuild; many people are left wondering, “How can I buy a house after bankruptcy?” The good news is that it is possible, and many people have done it. With time, planning, and the right guidance, you can do it too.

How Bankruptcy Affects Mortgage Applications

Declaring bankruptcy severely impacts your credit rating, one of the key metrics mortgage lenders use to decide if they’ll approve your mortgage. Lenders see bankruptcy as a major risk factor, so even without the damage to your credit rating, bankruptcy alone harms your ability to get a mortgage.

Although bankruptcy can be devastating in many respects, it’s not the end of the road. Many people who have been through bankruptcy ask themselves, “Can I buy a house after bankruptcy,” and go on to do so successfully. Rebuilding your credit is possible and relatively straightforward, but it does take solid strategy and discipline to carry out that strategy.

How Long After Filing Bankruptcy Can You Buy a House?

Can you buy a house after bankruptcy? Yes, but you’ll have to sit out a fixed waiting period first. The length of the waiting period depends on what type of bankruptcy you file for and what type of mortgage loan you apply for.

Note that the waiting period doesn’t start when you file. Rather than asking “How long after filing bankruptcy can you buy a house,” start your count from the discharge date: the date the court declares that you no longer have financial obligations to your creditors, and you get a clean financial slate.

Type of Bankruptcy

There are two types of bankruptcy for individuals: Chapter 7 bankruptcy and Chapter 13 bankruptcy. With Chapter 7 bankruptcy, your assets are sold to pay your creditors, and the remaining debt is forgiven. If you file for Chapter 13 bankruptcy, your assets are not seized, and you make monthly payments to a bankruptcy trustee over a 3- or 5-year period.

Type of Loan

The type of mortgage loan you want also affects the waiting period. It tends to be shorter for FHA and VA loans and longer for conventional loans. This table details the interaction between bankruptcy type and loan type:

How Can You Buy a House After Bankruptcy?

During the waiting period, focus on getting ready to apply for a mortgage. Lenders look for specific financial metrics and behaviors to determine if you’re a good credit risk. Spend the waiting period improving them.

Rebuild Your Credit

With your bankruptcy, your credit score will have taken a nosedive, but once you’re there, there’s no place to go but up. You can improve your credit score by:

• Paying all your bills on time.
• Getting a secured credit card: a card secured by a cash deposit.
• Trying a credit-builder loan: a loan you make payments on where you receive the loan amount at the end of the term rather than upfront.
• Avoiding new loans and credit cards.
• Checking your credit reports for any errors and having them corrected.

These tools are all great ways to get your credit score back up. Be sure to check that your payments are being reported to all three credit bureaus and keep an eye on how your score is improving.

Save for a Down Payment

How can you buy a house after bankruptcy? With a bigger down payment, you’ll have a much better chance. While some mortgage types don’t require a down payment, saving for one will reduce the size of the mortgage you have to take out, or it could help you get a bigger loan.

Regular savings can also signal to your lender that you’re financially disciplined and responsible.

Get a Mortgage Pre-Approval

Once your waiting period is up and you’ve worked to rebuild your credit, apply for a mortgage pre-approval. With pre-approval, you’ll get clarity on how much house you can afford. If everything goes to plan, you’ll be house hunting before you know it.

Mortgage Loan Options for Buyers After Bankruptcy

Check to see which federal programs you qualify for because some of them have looser credit score requirements. For example, FHA and VA loans are more forgiving of lower credit scores.

Can You Buy a House After Bankruptcy?

You absolutely can buy a home after you’ve filed for bankruptcy. Homeownership can be within your reach if you exercise discipline and patience. The important thing is to follow best practices and believe in your ability to persevere and get your financial health back.

If you need guidance on how to make it through the post-bankruptcy period, there are numerous organizations dedicated to helping people like you, such as the National Foundation for Credit Counseling and HUD counselors at regional offices. An experienced real estate agent can also be an excellent partner for getting back into the housing market.