One of the biggest bankruptcy myths is that you can’t buy a house after the case closes. While it can get trickier to get a mortgage because of low credit scores, it isn’t impossible. There are certain steps you should take to increase your approval chances.
How credit scores impact mortgages
Filing bankruptcy will impact your credit score for several years before it falls off, which depends on the type of bankruptcy. Chapter 7, a liquidation process to discharge unsecured debt, commonly stays on your credit report for 10 years.
If you fail the Chapter 7 means test that determines eligibility, you must convert to Chapter 13. Chapter 13 bankruptcy allows you to restructure your debts into a plan approved by the court without selling property. It commonly remains on your credit report for seven years, and lenders look more favorably on it.
Steps to get a mortgage after bankruptcy
The longer you wait to apply, the better chance you have of getting approval and securing lower interest rates. Pay your debts on time and find a secured credit card, which requires a deposit equal to the credit limit. If you can’t wait to get a loan, you have some options, but they have certain requirements.
The Federal Housing Administration usually allows Chapter 7 filers to apply two years after discharge and one year after Chapter 13. Chapter 7 filers must prove that they have the ability to pay, and Chapter 13 filers must have made timely payments. You may get approved sooner if you have an extenuating circumstance, such as a medical issue.
Some service members may be eligible for a Veteran’s Administration loan two years after a Chapter 7 discharge. Chapter 13 filers can commonly apply without a waiting period, but they must be one year into their payment plan.
If you have finished your bankruptcy case, check your credit report for errors. While bankruptcy can relieve your debt, you should consider it carefully because it will affect your ability to get a loan for several years after.