Buying a Home During and After Bankruptcy in Birmingham, Alabama

Alabama Bankruptcy Attorneys Help Debtors Get Their Financial Lives Back

One of the most common worries we hear from clients is that filing bankruptcy will keep them from ever owning a home. The good news is that it usually doesn't work that way. Bankruptcy will show up on your credit report for a while, and you will likely have to wait before a lender will approve a new mortgage, but for many people bankruptcy clears the way to a fresh start that makes homeownership more realistic, not less.

How soon you can buy depends on a few things: the type of bankruptcy you filed, the kind of mortgage you're applying for, and how well you rebuild your credit afterward. Here's a plain-English look at each.

How Long Do You Have to Wait to Buy a Home After Bankruptcy?

Mortgage waiting periods depend on the type of bankruptcy, the loan program, and whether your case was discharged (completed with qualifying debts wiped out) or dismissed (closed without a discharge). Many waiting periods start on the discharge date, but some start on the dismissal date. In certain cases, you may even be able to qualify while you are still in Chapter 13. These are general guidelines; lenders may have stricter requirements.

• After Chapter 7 bankruptcy. FHA loans generally require two years after discharge, although some borrowers with documented circumstances beyond their control may qualify sooner. VA loans also generally use a two-year guideline, with limited exceptions. USDA loans generally look for three years after discharge, though exceptions may apply. Conventional loans generally require four years after discharge or dismissal, or two years when qualifying circumstances beyond your control can be documented.
• During or after Chapter 13 bankruptcy. Chapter 13 usually involves a three-to-five-year repayment plan. Some people can qualify for an FHA or VA loan during the plan after at least 12 months of satisfactory payments and the required court or trustee approval. USDA loans may also be available during a repayment plan, but the rules depend on how the lender reviews the application. Conventional loans generally require two years after a Chapter 13 discharge or four years after a dismissal. The dismissal period may be shortened to two years in certain documented circumstances.

Meeting a waiting period does not guarantee mortgage approval. Lenders also review your income, debts, credit history, and ability to make payments. If you are still in Chapter 13, talk to your bankruptcy attorney before applying for a mortgage so you can obtain any required approval.

Which Type of Mortgage Is Easiest to Get After Bankruptcy?

Government-backed loans may offer a faster path to homeownership after bankruptcy because some have shorter waiting periods or more flexible credit rules. But each program has its own requirements. VA loans are for eligible military borrowers and certain others, while USDA loans have location and income limits. FHA loans have their own rules, too. A mortgage lender can help you compare these options with conventional loans and find out which ones may fit your situation.

What Credit Score Do You Need for a Mortgage After Bankruptcy?

Rebuilding your credit after bankruptcy matters. Your credit history and score can affect whether you qualify, your interest rate, and sometimes your down payment. Here is how the major loan programs generally approach credit scores:

• FHA loans. The FHA allows scores as low as 500, but you'll need a 10% down payment at that level. With a score of 580 or higher, the down payment can be as low as 3.5%. Many lenders set their own minimum higher than the FHA floor.
• VA loans. The VA does not set a minimum credit score, but individual lenders often have their own requirements.
• USDA loans. USDA guaranteed loans do not have a universal minimum credit score. Your lender will review your overall credit and finances, and some applications may need a closer review.
• Conventional loans. There is no single credit-score minimum for every conventional loan. Fannie Mae and Freddie Mac do not require a fixed minimum score for certain loans reviewed through their automated systems, although other loans and individual lenders may have minimums. A stronger credit profile can help you qualify for better terms.

A credit score is only one part of a mortgage application, and lenders can set additional requirements. It is worth comparing lenders rather than assuming one score automatically means approval or denial.

How to Rebuild Your Credit After Bankruptcy

A Chapter 13 bankruptcy generally remains on your credit report for seven years from filing, while Chapter 7 may remain for up to ten years from filing. You can start rebuilding credit before either one disappears. A few habits can help:

• Pay every bill on time, every time. Payment history is the biggest factor in your score.
• Consider a secured credit card or a small credit-builder loan, and keep balances low.
• Check your credit reports for errors, especially debts that were discharged but still show a balance, and dispute anything that's wrong.
• Save for a down payment and keep some cash in reserve. Lenders like to see that you can handle a setback without missing payments.

Contact an Experienced Birmingham, AL Bankruptcy Lawyer

Do you want to buy a home but worry that bankruptcy will get in the way? We can help you understand how a Chapter 7 or Chapter 13 filing is likely to affect your timeline and what steps to take now. Contact the Birmingham bankruptcy lawyers at the Bond & Botes Law Offices online or call 1-877-581-3396 to schedule your free initial consultation with an experienced Alabama bankruptcy lawyer today.

Mortgage eligibility rules depend on loan-program guidelines and lender requirements, and they can change. Bankruptcy law also affects whether you can take on new debt during an active case. Bond & Botes Law Offices does not make or arrange mortgage loans. Please confirm current mortgage requirements with a licensed lender.