How to buy a house after bankruptcy

| Jan 26, 2021 | blog, chapter 7 |

Filing for bankruptcy may have negative consequences for your credit score and overall creditworthiness. However, it may be possible to purchase a home in New Jersey in as little as a year after the discharge of your case. Let’s take a closer look at some potential paths to home ownership after seeking protection from creditors.

What type of loan are you seeking?

If you file for Chapter 7 bankruptcy, you’ll typically need to wait at least two years before you are eligible for an FHA or VA loan. Furthermore, you won’t be eligible for a USDA loan for at least three years from the date of your case’s discharge. If a liquidation bankruptcy was the result of extenuating circumstances, you’ll only need to wait one year before applying for a government-backed mortgage.

In addition, it may be possible to obtain an FHA, VA or USDA loan one year after filing for Chapter 13 bankruptcy. Most conventional loan providers won’t consider your application until at least two years after the discharge of your case or up to four years after its dismissal.

Do you meet lender requirements?

You will likely need a credit score of at least 580 to obtain an FHA loan after a bankruptcy. However, it may be difficult to get the best loan terms unless your score is above 620. Furthermore, you’ll need to make a down payment of at least 3.5% and have a debt-to-income ratio of less than 50%. Finally, you will need to show a steady source of income expected to last for at least three years after your application’s approval.

If you are struggling to pay your bills on time, filing for bankruptcy may help you begin the process of securing your financial future. An attorney may be able to provide more insight into the process of filing for protection from creditors. He or she may also explain the potential benefits of doing so, including obtaining an automatic stay of creditor collection activities.