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When can I buy a home following bankruptcy?

Many people today are facing bankruptcy procedures (for more on that, see our posts on Chapter 7 and Chapter 13bankruptcy). But what happens after the whole thing finishes? Is it really hopeless in buying a new home?

No, actually, buying a home is possible -- in some cases, even as short as six months following a bankruptcy. Here's what you need to know.

In general, the allowable period between bankruptcies is seven years. Theoretically, that means that seven years must pass before you can declare bankruptcy for a second time to get out of bad debt. Of course, a mortgage is a pretty large amount of debt, so that's why these things are often tied together. In terms of your credit report, bankruptcy will appear on your report for ten years.

Now, what kinds of loans can you actually get following a bankruptcy? Remember, a bankruptcy will ding your credit score by 200-400 points. The important thing is to start building your credit as soon as possible. The nice (if there is such a thing) part about bankruptcy is that you do start from a clean slate -- no outstanding credit card bills or overdue payments hanging over your head.

With that in mind, in some cases you can get a conforming loan just six months after a bankruptcy. This can be done if your credit was outstanding prior to bankruptcy (so it doesn't appear as badly following the hit) and you've aggressively started to rebuild your credit. You'll also need a significant amount of cash -- usually about 20-35% down in order to get a mortgage. The interest rate will be very high and the loan terms are not as favorable; many will contain prepayment penalties and be adjustable.

Most people can't afford to do that, so the next best thing is to just aggressively re-build your credit and save for a down payment to go with your eventual new loan. In many cases, a smart path can get you there before seven years. It's best to consult with a bankruptcy expert and a credit counselor to explore your options following such a major change.

Israel Gonzalez
Real Estate Broker
831-636-8858
www.bestreohomes.com 
Click here to contact me by email.

The views published here are the opinions of the writer and are not a substitute for legal counsel.

Posted: Wednesday, March 17, 2010 10:50 AM by Israel and Rachel Gonzalez

Comments

Lucinda Preece said:

# September 7, 2017 11:13 PM

Ryan said:

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# September 20, 2017 3:00 AM
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