Buying a Home After a Bankruptcy
There is a pervasive myth that, once someone has filed for personal bankruptcy, they’ll never again have the creditworthiness to make major purchases or to obtain loans. However, this simply isn’t true. Some lending options are available to borrowers immediately after, or even prior to, discharge, and with careful credit and money management, home ownership is not outside the reach of those who have previously filed for bankruptcy. Read on to learn about obtaining a mortgage after bankruptcy.
Expect a waiting period post-discharge
No matter what sort of home loan you attempt to obtain after a bankruptcy, there will necessarily be a waiting period of some length after your bankruptcy is discharged. The amount of time you wait will depend largely on the form of bankruptcy you filed, as well as the type of loan you seek. Since filing bankruptcy under Chapter 7 entails essentially eliminating the bulk of your debt, this form of bankruptcy does more to injure your credit score, and will require more time to rebuild your creditworthiness. Generally, Chapter 13 debtors are able to qualify to apply for a mortgage in about half the time that a Chapter 7 debtor can, since the Chapter 13 debtor has continued to make payments on their debt and retains more of their credit history.
Conventional loans will entail a longer wait than subsidized loans
Conventional loans refer to those mortgages which are not offered under a federal subsidy program, and comply with the minimum criteria established by Freddie Mac and Fannie Mae. For those who filed for bankruptcy under Chapter 7, there is a waiting period of at least four years from the date of discharge. That potential borrower must also show that they are a good candidate for a loan, and will not again find themselves in a position of needing to file for bankruptcy. For those who filed under Chapter 13, there is a wait of two years from discharge, provided the debtor made all court-mandated payments in a timely manner.
Loans insured by the Federal Housing Authority are an option for those with poor credit histories
FHA-insured loans are a federally-subsidized option which offers more flexible standards on who will qualify for a loan, with a shorter post-bankruptcy waiting period for applicants. For Chapter 7 debtors, that wait is at least two years, provided the potential borrower has established their creditworthiness. Chapter 13 debtors can expect a one-year wait, provided they have made all court-mandated payments and obtained written consent from the bankruptcy judge to apply. Both conventional and FHA loans offer an exception from these time limits where the bankruptcy was outside the control of the debtor, such as due to the death of a spouse, natural disaster, or catastrophic injury or illness. However, exemptions from the time limits are rarely granted.
If you have questions about a home purchase, or need skilled legal assistance with a different real estate matter in the Annapolis area, contact experienced Maryland real estate attorney Matthew Evans III for a consultation, at 410-626-6009.