Consumer Law Center of Maryland
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Can I Purchase a Home After a Bankruptcy?

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If you’ve recently filed for bankruptcy, you may be feeling concerned about your ability to have a normal financial life in the future. However, bankruptcy need not be the credit death sentence you may have believed it to be. Many people who have filed Chapter 13 bankruptcy are able to obtain auto financing even before their bankruptcy proceeding is concluded, and those with Chapter 7 bankruptcies may be able to obtain financing immediately after they receive their discharge. By taking the right steps to prepare for life after bankruptcy, even home ownership need not remain an unattainable goal for you and your family.

Focus on rebuilding your credit and financial reputation

While you are either in the process of making court-mandated payments under your Chapter 13 bankruptcy, or have recently received your Chapter 7 discharge, see the time as an opportunity to rewrite your creditworthiness. Find a credit card designed for those with poor credit, and use it to make day-to-day purchases which you will pay in full each month. Set up auto-pay on your monthly bills, so that you never miss a payment. Begin building a savings account for a down payment. In order to qualify for a mortgage, you need to be able to prove to a potential lender that your circumstances have changed sufficiently that you will not end up in a position of needing to file for bankruptcy again after they agree to lend to you. You must show, through making responsible financial decisions and timely paying all bills, that you are now a safe, responsible choice as a loan recipient.

Consider various loan options, and the associated waiting periods involved

Loans through various mortgage programs each come with different qualifying criteria, which may be modified further by individual lenders. You may be a good candidate for some, but not others, so know your options. For example, Fannie Mae imposes a four-year waiting period from the date of discharge for Chapter 7 debtors, and a two-year wait for Chapter 13 debtors. If you qualify for certain federally-subsidized lending programs, your wait can be much shorter.

One option for those with poor credit histories is a loan insured by the Federal Housing Administration (FHA). Loans insured by the FHA are designed to offer a home-buying option for individuals with weak or checkered credit histories. While FHA loans are more flexible in who is qualified to borrow, there are time restrictions for those with past bankruptcies before you can apply for an FHA loan. Those with Chapter 7 bankruptcies may apply for an FHA-insured loan after two years have passed from the date of discharge, so long as the potential borrower has spent that time building up a positive credit history, free of late payments or collections judgments. Special exceptions exist for those whose bankruptcy was for reasons outside of their control, such as the death of a spouse or a serious illness; under those circumstances, the FHA will allow loan applications within 12 months of discharge. For applicants with Chapter 13 bankruptcies in their past, the FHA will require that a year has passed since the discharge, that all court-ordered payments pursuant to the bankruptcy were made in a timely manner, and that the court has granted written permission for the bankruptcy petitioner to apply for a mortgage.

If you are in search of legal assistance with a consumer law, bankruptcy, or mortgage issue in Maryland, contact Germantown bankruptcy law firm Haeger Law for a consultation, at 888-463-3520.