We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
Filing for Chapter 7 bankruptcy can feel like a major setback on the road to homeownership. But the truth is, with some patience and hard work, buying a house after Chapter 7 bankruptcy is possible.
Understanding Chapter 7 Bankruptcy
Chapter 7 bankruptcy completely wipes out many types of unsecured debt like credit cards medical bills and personal loans. This is known as a “discharge” of debts. However, your bankruptcy will remain on your credit report for 10 years.
During the bankruptcy proceedings a court trustee can seize some assets like a second home or extra vehicle to pay creditors. But you’re typically allowed to keep basic necessities like your primary home car, clothing, and household items.
The key benefit of Chapter 7 bankruptcy is providing filers with a “fresh start” financially. However, the tradeoff is a major ding to your credit.
Waiting Periods for a Mortgage After Chapter 7
Here are the typical waiting periods lenders require before they’ll consider your application for a home loan after a Chapter 7 bankruptcy discharge:
- FHA loans: 2 years
- VA loans: 2 years
- USDA loans: 3 years
- Conventional loans: 4 years
These seasoning periods start from the date your Chapter 7 bankruptcy was officially discharged by the court, not the initial filing date.
In some cases, such as extenuating circumstances like job loss or medical expenses, you may qualify for an FHA loan after 1 year. But that is difficult to achieve and requires thorough documentation.
Rebuilding Your Credit Score After Bankruptcy
During the Chapter 7 waiting period before you can buy a house, it’s essential to focus on rebuilding your credit score. The higher your score, the better mortgage rate and terms you can get.
Here are some tips for restoring your credit after bankruptcy:
- Make all loan and bill payments on time each month
- Keep credit card balances low
- Open a new credit account and use it responsibly
- Don’t take on new debt immediately unless absolutely necessary
- Check credit reports and dispute any errors
With diligent effort, you can raise your credit score significantly in 2-4 years. This will really help your mortgage approval chances.
Which Loans Allow Home Buying After Chapter 7?
Once you meet the waiting period and credit requirements, many types of mortgages are available to Chapter 7 filers:
FHA loans – One of the most accessible options thanks to 3.5% down and 580 minimum FICO score. But you have to pay mortgage insurance for the full loan term.
VA loans – For veterans and military members. Also features low down payment options and no mortgage insurance. Need to wait 2 years after Chapter 7 discharge.
USDA loans – For low-income buyers in rural areas. Requires 3% down payment and 640 credit score minimum. The 3 year waiting period can sometimes be waived.
Conventional loans – You’ll probably need at least 10% down and a 620 FICO score. But interest rates are competitive and you can stop paying private mortgage insurance once you build 20% home equity.
Applying for a Mortgage After Chapter 7 Bankruptcy
When applying for a home loan after Chapter 7, be ready to provide:
- A copy of your Chapter 7 discharge papers
- A signed letter explaining the bankruptcy
- Proof you’ve reestablished good credit
- Tax returns and income documentation
- Large down payment if possible
Keep in mind, lenders will scrutinize your finances very closely after bankruptcy. The best way to improve your odds is having a higher credit score, larger down payment, and ideally some cash reserves.
Buying a House After Chapter 7 Bankruptcy: Final Thoughts
- Plan for a waiting period of 2-4 years before mortgage eligibility
- Raise your credit score as much as possible
- Save for a down payment of at least 10-20%
- Get preapproved to confirm your home buying capacity
- Work with a lender experienced in bankruptcy mortgages
- Remember, homeownership is achievable with time and diligence!
How soon can you get a mortgage after bankruptcy?
It depends on the type of mortgage you want to get — each home loan program has a different waiting period — but also exactly how you originally declared bankruptcy.
There are two main types of bankruptcy: Chapter 7 and Chapter 13. The former is the most common type, and it involves a liquidation of your assets, which go towards discharging most or all of your outstanding debt. A Chapter 7 bankruptcy is usually approved for those with limited income to repay what they owe. It stays on your credit report for up to 10 years.
A Chapter 13 or reorganization bankruptcy involves creating a plan to repay your creditors, taken from your earnings, at a percentage of what you owe them — up to 100 percent. This repayment plan takes longer than a Chapter 7, often three to five years, and it has to be approved by a bankruptcy court. It will stay on your credit report for seven years maximum.
Here’s an overview of how long after bankruptcy you can get a mortgage, depending on the kind of loan and the chapter you file:
Variety of mortgage loan |
Waiting period after filing |
|
|---|---|---|
| Chapter 7 | Chapter 13 | |
| Conventional | 4 years | 2 years after discharge or 4 years after dismissal |
| FHA | 2 years | 1 year |
| VA | 2 years | 1 year |
| USDA | 3 years | 1 year |
Leslie Tayne, attorney and founder of Tayne Law Group in Melville, New York, says you’re eligible for a mortgage a few years after a Chapter 7 discharge of debt. Exactly how long ranges from two to four years, depending on the sort of mortgage you want:
- FHA/VA loan: two years after filing
- USDA loan: three years after filing
- Conventional loan: four years after filing
If you can’t wait it out, Ashley Morgan, a debt and bankruptcy attorney in Herndon, Virginia, says there are limited-availability programs that can allow a Chapter 7 debtor to qualify for FHA financing in as little as one year. “But you have to prove that your debts or financial issues were due to extreme circumstances outside your control,” Morgan says, “such as the death of a spouse or divorce.”
The waiting periods following a Chapter 13 bankruptcy are, thankfully, shorter, “because the borrower has already taken time to improve their financial situation through the Chapter 13 bankruptcy process, which involves some repayment,” Tayne says. The waiting periods are:
- FHA, VA, or USDA loan: one year from filing
- Conventional loan: two years after discharge or four years after dismissal
Tayne explains that a “discharge” happens when you complete your repayment plan laid out by the court and the matter is discharged by the court, meaning you’ve successfully paid back your creditors.
“Dismissal” occurs when you cannot complete the repayment plan and the case is, therefore, dismissed by the court — essentially meaning the bankruptcy was not successful. The waiting periods are shorter for discharges because the filer has been working toward improving their credit through the repayment process.
However, you may qualify for a mortgage even during the Chapter 13 process if you can demonstrate that you’ve made 12 months’ worth of on-time payments and get court approval.
“Here, the court will often want to review the financing terms and compare your monthly mortgage payment to the rent payment list in your bankruptcy,” Morgan says. “If your new monthly mortgage payment would be higher, you usually have to show how you will afford the increased payment and why that money shouldn’t go to creditors.”
Rebuild your credit
Put your waiting period to good use: Bouncing back from bankruptcy’s hit to your credit score takes time. The first step is to open a secured credit card. You’ll make a deposit that becomes your credit limit. With some issuers like U.S. Bank and Capital One, if you make on-time payments, they might eventually refund your deposit to make your credit card unsecured (and maybe even raise your credit limit).
On this card, as well as any others you have, take extra care to pay balances in full and on time (delinquencies also make a major dent in your score). Along with establishing a solid payment history, you’ll also want to keep your debt down. The fewer obligations you have, the better your debt-to-income ratio, a key factor mortgage companies examine when determining mortgage eligibility.
How to Buy a House After Filing Chapter 7 & Chapter 13 Bankruptcy (THINGS YOU NEED TO KNOW)
FAQ
How long do I have to wait to get a mortgage after Chapter 7?
|
Bankruptcy Type
|
Conventional Loans
|
FHA or VA Loans
|
|
Chapter 13
|
Two years from discharge date or four years from dismissal
|
One year from discharge date
|
|
Chapter 7
|
Four years from discharge date
|
Two years from discharge date
|
Can I get an FHA loan after Chapter 7?
Is it hard to get a loan after filing Chapter 7?
Can you buy a house after Chapter 7 with a co-signer?
Can I get an FHA home loan after Chapter 7 bankruptcy?
So yes, it is possible to obtain an FHA home loan after Chapter 7 bankruptcy,” says Jeremiah Heck, a debt and bankruptcy attorney. “Typically, you have to wait for a minimum of two years after your bankruptcy is approved by the courts to be eligible.” In some cases, the mortgage lender may require additional time.
Can I get a mortgage after Chapter 7 bankruptcy?
Many people are able to get a mortgage after filing Chapter 7 bankruptcy. Lenders have their own requirements and waiting periods but buying a home after bankruptcy is possible. The real question here is: When will you be able to qualify for a mortgage? This will vary based on the type of loan you pursue.
Can I buy a house after Chapter 7 bankruptcy?
Depending on the type of mortgage, many filers only wait 2-4 years to buy a house after Chapter 7 bankruptcy. For the most part, it’s easier to buy a home after Chapter 13 bankruptcy than Chapter 7. Rather than all debt being discharged, Chapter 13 bankruptcy puts filers on a 3-5 year debt repayment plan.
How long can a Chapter 7 debtor get a mortgage?
Exactly how long ranges from two to four years, depending on the sort of mortgage you want: If you can’t wait it out, Ashley Morgan, a debt and bankruptcy attorney in Herndon, Virginia, says there are limited-availability programs that can allow a Chapter 7 debtor to qualify for FHA financing in as little as one year.