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If filing for bankruptcy is standing in your way of becoming a homeowner, we have good news: There is a road to recovery. Your dream of homeownership is still attainable as long as you're doing all the right things— keeping a lid on debt, paying bills on time, and working to improve your credit score.
So, can you buy a house after bankruptcy? Yes. Here's how.
In this article:
How to buy a house after bankruptcy
We won't dig deep into the financial moves you need to make. No doubt, you've probably heard all of the money advice you can stand by now. This is about the nuts and bolts of buying a house post-bankruptcy from the standpoint of qualifying for a mortgage.
One thing that makes home loans different from many other types of debt is that they are secured by a property. That gives mortgage lenders collateral and makes them more likely to approve someone after bankruptcy rather than granting something like an unsecured personal loan or credit card.
Waiting periods
The waiting period is one of the core qualifiers for buying a house after bankruptcy. It applies to all loans except a non-qualified mortgage, which typically requires a large down payment and charges a higher interest rate. That's an edge case. Let's talk about getting a run-of-the-mill home loan (and we’ll touch on non-QM loans again later).
The waiting period — the amount of time before you should submit a mortgage application — varies for the most common loan programs and the type of bankruptcy.
Waiting periods for conventional loans
Here are the mandatory waiting periods for conventional loans, which many think of as “traditional mortgages.”
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Chapter 7 or Chapter 11 bankruptcies: The waiting period is four years. That can be lowered to two years with extenuating circumstances — things beyond the borrowers' control — such as a prolonged loss of income.
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Chapter 13 bankruptcy: Two years from the bankruptcy discharge date and four years from the dismissal. With extenuating circumstances: Two years from discharge and two years from dismissal.
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Multiple bankruptcy filings: Five years from the most recent discharge or dismissal date if you have more than one filing in the last seven years. For extenuating circumstances, it’s three years from the most recent discharge or dismissal date if you've had more than one filing within the past seven years.
Waiting periods for government loans
And there are the waiting periods for popular government home loan programs:
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FHA loans: You can start the process two years after a Chapter 7 discharge or one year with extenuating circumstances. For a Chapter 13 bankruptcy, it’s one year.
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VA loans: For a Chapter 7, generally two years. For a Chapter 13, one year.
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USDA loans: For a Chapter 7, generally three years. For a Chapter 13, one year.
Of course, waiting periods are in addition to the usual qualifications for getting a mortgage, such as your credit score and debt-to-income ratio.
Loan programs for buying a house after bankruptcy
FHA loans
FHA loans are likely the best type of mortgage for buying a home after bankruptcy. Loans backed by the Federal Housing Administration have the most lenient eligibility standards. You can qualify with a credit score of just 500 if you can scrape together a 10% down payment. Otherwise, a FICO 580 will be the hurdle to clear.
VA loans
If you have a military service connection, VA loans, backed by the Department of Veterans Affairs, are even better, typically requiring no down payment — though VA mortgage lenders often require minimum credit scores of 620 or better.
USDA loans
You can get a USDA loan after filing for bankruptcy — just keep in mind that these mortgages have strict location and income restrictions.
Conventional loans
Conventional mortgages, which are the home loans lenders issue most often, are usually the toughest to qualify for.
Non-qualified mortgages
Non-qualified mortgages aren't backed by a government program — the lender is using their own capital to fund the mortgage. That means there are fewer rules: no waiting period, no minimum credit score, and no mortgage insurance.
It's up to the lender to decide who qualifies and under what terms. However, you are likely to pay a higher interest rate on the loan and have to make a sizeable down payment.
Regardless of the loan program you pursue, you will want to be prepared to make your case. Show lenders that you have:
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A steady, reliable income
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A recent credit history of on-time payments
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A rising credit score
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A reasonable debt-to-income ratio — somewhere substantially under 50% is preferable
Can you buy a house after bankruptcy? FAQs
What credit score is needed to buy a house after bankruptcy?
The bottom line credit score to buy a house is a FICO 500 for an FHA loan with a 10% down payment. FHA will take less money down with a score of 580. Conventional loans and VA lenders usually look for a 620 or better. Non-qualified mortgages have no standardized minimum credit score requirement, so it varies by lender.
How hard is it to get a home loan after filing for bankruptcy?
It's not easy, but buying a house isn't the easiest thing to do, even with an unblemished credit report. Buying a home after bankruptcy takes patience, realistic expectations, and some financial groundwork. Talk to a few lenders, show them your new track record of steady payments, and detail your bankruptcy situation honestly. Worst case scenario? They don’t accept an application but give you some good advice.
How long do bankruptcies last?
When people think about bankruptcies, they think of seven to 10 years of purchasing purgatory. And while those are the years, respectively, that Chapter 13 and Chapter 7 bankruptcies remain on your credit report, that doesn't really factor into the timeline for buying a house after bankruptcy. Depending on the kind of mortgage you get and the type/number of bankruptcies you’ve filed, the waiting period can last between one and five years.
This article was edited by Laura Grace Tarpley.
