How Soon Can I Buy a House After Chapter 7?
If you filed Chapter 7 bankruptcy to discharge debt, you are aware of the significant negative impact associated with bankruptcy. Even though your credit score suffers a blow, obtaining credit again is not impossible. If you are interested in buying a home, bouncing back will take some time and proper planning.
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Credit Consequences
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Chapter 7 bankruptcy will remain on your credit report for at least 10 years from the date the petition was filed. Since payment history accounts for 35 percent on your credit score, missing payments can immediately begin to impact your score. A lower credit score will result in a higher interest rate. Bankruptcy wipes the slate clean. You will no longer have the debt dragging down your debt-to-income ratio. Less expenses free up more money to apply toward the mortgage each month.
Immediately After Bankruptcy
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Finding a lender to extend credit immediately after bankruptcy is a challenge. Within six months of bankruptcy, you may find a lender willing to approve your mortgage application, but you should expect to pay more since a higher interest rate leads to an increased payment. To compensate, consider offering a higher down payment or purchasing a less expensive home.
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18 to 24 Months After Bankruptcy
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Within 18 to 24 months after bankruptcy, you will likely be able to obtain a loan on the same terms as without a bankruptcy on your credit report. The lender will review your recent payment history on the accounts you currently maintain. Your debt-to-income ratio will also affect your eligibility. Lenders also take into account the stability of your income and size of your down payment. An FHA loan is an alternative to a conventional loan since the credit score requirements for an FHA loan are more forgiving.
Rebuilding Credit After Bankruptcy
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To improve your credit score, you will need credit. Unfortunately, credit does not come easily after bankruptcy. A secured credit card is an option to prove your ability to pay and begin re-establishing your credit. Since lenders are not likely to take a gamble by securing the line of credit, you will need to supply the collateral. By making timely payments, the creditor will begin reporting the positive payment history to the credit bureaus.
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References
- Law Help; Thinking About Bankruptcy? What You Need to Know Before You File; Southern Arizona Legal Aid, Inc.
- Grossbart, Portney, Rosenberg, PA: Will I Be Able to Buy a House If I File Bankruptcy?
- Moran Law Bankruptcy in Brief: Credit After Bankruptcy
- MSN Money; Bounce Back Fast After Bankruptcy; Liz Pulliam Weston; February 2009
