Feb 6, 2023 •

Will Filing Chapter 7 Prevent Me From Buying A Home?

The past-due bills and notices have been piling up on your kitchen counter, you are facing a mountain of credit card debt, and you are receiving harassing phone calls from collection groups and creditors.  However, you are still hesitant to file for Chapter 7 bankruptcy because you are afraid that you will never be able to purchase a home if you do.

Great news!  If you take the proper steps and work with an experience bankruptcy attorney, you can get rid of your crushing debt AND buy a home.

When Can You Apply for a Home Loan?

It is true.  Filing a Chapter 7 bankruptcy will negatively impact your credit score.  This is because most of your debts are discharged rather than paid off through a repayment plan, as in a Chapter 13 bankruptcy.  Because of this you will need to wait a specific time before applying for a home loan.  The length of your wait time can depend on the type of loan you are trying to get.  Typically, lenders will require that you wait four years before applying for a conventional loan, and two years for an FHA or VA loan.

Which Type of Home Loan is Best?

With a Chapter 7 bankruptcy on your record, you must know what to expect from each type of home loan, and how you might be able to qualify.

  • FHA: After a Chapter 7 bankruptcy, an FHA home loan might be your best bet. It has a shorter waiting period after bankruptcy than a conventional loan, and it can have lower credit score requirements.
  • Conventional: The waiting period for a traditional loan is more extended than an FHA loan and requires a higher credit score. This means you must prove that you can make regular and on-time payments after your bankruptcy.
  • VA: VA loans are reserved for military veterans.  These loans are generally more relaxed regarding credit scores, that is, as long as other terms of the loan are met.

Additionally, it is good to keep in mind that the more considerable the down payment you can put onto the house, the better your odds of being approved for a loan with a lower credit score.

How to Improve Your Chances of Getting a Home Loan

With a Chapter 7 bankruptcy on your credit record, it will be essential that you do everything that you can to improve your financial record before applying for a home loan.  Some tips experts have recommended are:

  • Increase your credit score: After your bankruptcy, make sure to pay ALL bills on time to establish a positive routine of on-time payments.  Over time your on-time payments will help to boost your score with the credit bureaus.
  • It would be best if you also tried to obtain new lines of credit, such as a credit card. Again, this will help to increase your credit score, but it is essential to be careful with the new card, and only charge what you can afford to pay off that month.  You must avoid acquiring and growing new debt.
  • Avoid the problems that led to your bankruptcy: Create and work to live within a budget.  A budget, while being a nasty word, is a beautiful tool that, when regularly used, will help you to keep your spending under control, will allow you to pay your bills on time, will help to ensure that you are not creating new and growing debt, and may even help you to save for a rainy day.
  • Write a bankruptcy explanation letter: When you apply for a mortgage, the lender will know about your bankruptcy. They perform a thorough financial background check on every applicant, which could harm your chances for approval if you attempt to hide your bankruptcy.  Instead, take ownership of your bankruptcy and address it head-on.  Write a letter of explanation to provide information on what led to your bankruptcy.  Include details outlining the economic changes made since your bankruptcy to show that you can make your monthly payments regularly and on-time.
  • Get a pre-approval letter:  A letter from a lender tells you how much money you have been approved to borrow for the home loan, and it shows the sellers that you have been approved to get a loan to buy the house.  In the end, having a pre-approval letter could put you into better standing when submitting an offer than an individual with a better credit score and no pre-approval letter.

When you file for Chapter 7 bankruptcy, it is essential to work with a bankruptcy attorney to know exactly what to expect during the process and afterward.  Explain to your attorney your desire to purchase a home soon after your bankruptcy, and your attorney can then help you take the right steps to make that happen.

Contact The Alliance Legal Group, PLLC

Are you hoping to purchase a home after filing for bankruptcy?  Then, it would help if you had an expert on your side.  It is crucial to hire an experienced attorney that will guide you through the bankruptcy process and answer your questions.

Call (757) 923-4357 today to schedule your FREE Consultation Appointment.  The bankruptcy attorneys at The Alliance Legal Group, PLLC, will review your options and help you to find the best path for you and your financial future.  Do not let debt ruin your life.

You might also like to read: 5 Ways to Build Credit After a Bankruptcy

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