When a debtor in Escondido, California, doesn’t see a way out of debt, bankruptcy can give them relief. However, a homeowner may hesitate to file because they have concerns about credit. It is possible to buy a home after bankruptcy, contrary to myths.
Credit scores and buying homes after bankruptcy
Navigating life after bankruptcy often means dealing with lower credit scores a few years. After Chapter 7 bankruptcy, a liquidation process commonly stays on the credit report for ten years. This is because Chapter 7 discharges most unsecured debts, such as credit card debt. Chapter 13 bankruptcy, a debt repayment plan, remains on the credit report for seven years, because the debtor pays creditors.
Bankruptcy doesn’t prevent a debtor from buying a home after bankruptcy, but they need to improve credit. It is possible to get loans a few months after the discharge, but waiting may get them better interest rates. Borrowers are encouraged to check their credit reports and apply for one secured credit card, a card requiring a deposit, to improve scores.
Types of home loans after bankruptcy
The Federal Housing Administration offers more lenient terms for first-time buyers or consumers with low credit scores. FHA loans require the borrower to wait one year after discharge, a 10% down payment with a FICO score of 500 to 579 to apply.
The Veteran’s Administration offers veterans and service members loans with no down payment required. They don’t require a down payment, but the consumer must wait for one to two years after the bankruptcy discharge before applying.
A non-qualified mortgage loan allows debtors to use alternate qualifying terms that fall out of federal guidelines. It is commonly more expensive, but benefits the self-employed and may not require waiting periods to apply.
While debtors aren’t barred from mortgages after bankruptcy, they must make themselves creditworthy. They should analyze their situation and study their options carefully to get the best loan.