Many people worry that bankruptcy will forever disrupt their dreams of homeownership. However, purchasing a home after bankruptcy is not impossible, though it may take some time. The length of time will depend on a number of factors including what type of bankruptcy you filed for, what types of loans may be available to you and how long it takes you to rebuild credit.
Bankruptcy and mortgages
Chapter 7 bankruptcy involves having certain assets sold to pay off debts. With Chapter 7 bankruptcy you can eliminate most of your debts for property you do not keep.
Chapter 13 bankruptcy involves reorganizing debts into a repayment plan. Your repayment plan can last three to five years, and any debt remaining after that time gets discharged.
Chapter 13 bankruptcy is generally more favorable than Chapter 7 bankruptcy in the eyes of mortgage lenders. In some cased, having a more favorable kind of bankruptcy can contribute to someone getting approved for a mortgage sooner. However, it generally takes two to four years after bankruptcy before someone will be considered for a loan to purchase a home.
Rebuild your credit
Your credit is a big component affecting your ability to purchase a home. Because of the difficulties you experienced before filing bankruptcy, as well as potential effects of the bankruptcy itself, you may need to heal your credit before you are able to qualify for a large loan, like what you would need to purchase a house.
Fortunately, once the bankruptcy process is done, there are several actions you can take to rebuild your credit, including:
- Regularly checking your credit report for errors
- Only opening a few credit accounts
- Using credit for small purchases
- Making all payments on time
Filing bankruptcy does not have to be the end of your homeownership dream. It may take time and diligence, but you can still buy a home after bankruptcy.