2020 Best Invention

Can I Buy a House After Bankruptcy?

4 minute read Upsolve is a nonprofit tool that helps you file bankruptcy for free. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card. Explore our free tool


In a Nutshell

There are multiple financing options available to buyers post-bankruptcy. The most important step is to make the most of your waiting period before you apply for a loan.

Written by Kristin Turner, Harvard Law Grad
Updated April 19, 2022


For many people, owning a home is part of the American Dream. Some people are afraid that filing aChapter 7 bankruptcy will end that dream. The good news is that it’s possible to buy a house after bankruptcy.

If you’re considering bankruptcy, your credit score is probably already too low to buy a house anyway. Bankruptcy allows you to wipe the slate clean and rebuild your credit history.

It also looks better on a credit history than having multiple accounts charged off or in collections. Filing bankruptcy shows lenders that you took action to get your finances under control.

Your ability to buy a home after bankruptcy may impact your decision of whether to file. Though individual situations vary, millions of people with bankruptcies on their records successfully apply for home loans. This article can help prepare you for what to expect when buying a home after bankruptcy.

What if I Previously Owned a Home?

In many cases, people file for bankruptcy after they’ve owned a home at some point. If that’s the case for you, you may have experienced one of the following events foreclosure, short sale, or a deed in lieu of foreclosure. These pre-bankruptcy events can have different impacts on your credit report. All of them are usually included and then erased in bankruptcy.

Upsolve User Experiences

1,850+ Members Online
Misa
Misa
★★★★★ 4 months ago
It was very easy. They guided me through everything.
Read more Google reviews ⇾
charles sullivan
Charles Sullivan
★★★★★ 4 months ago
I am very pleased with the services,and guidence that Upsolve give me
Read more Google reviews ⇾
Cheyenne Neeley
Cheyenne Neeley
★★★★★ 4 months ago
Amazing
Read more Google reviews ⇾

Post-Bankruptcy Loans

The following guidelines are accurate as of 2018. They are subject to change from time to time, so it’s important to get the latest information.

The two most important things to consider when shopping for a post-bankruptcy loan are the interest rates and the required waiting period between your discharge and the time you apply for the loan.

Most homebuyers with credit scores in the mid-600s usually opt for government-backed mortgage loans with the Federal Housing Administration (FHA) or Veterans Administration (VA). In some cases, you don’t need to be a veteran to receive a VA loan. 

Federal Housing Administration (FHA) Loans vs. VA Loans

Here are some of the ways FHA loans and VA loans differ.

Federal Housing Administration Loans 

  • Interest Rates. FHA loans usually have slightly lower interest rates than VA loans. Every little bit counts. When considering a 30-year or 40-year loan, a few tenths of a percentage point is a lot of money.

  • Waiting Period. If you file Chapter 7 bankruptcy, you may qualify for an FHA loantwo years after your bankruptcy is discharged if your credit score is at least 640. That’s shorter than the foreclosure, short sale, or deed in lieu of foreclosure waiting period, which is three years. 

Veterans Administration (VA) Loans

  • Interest Rates. VA loans usually have higher interest rates. But many VA loans require little or no down payment.

  • Waiting Period. The bankruptcy waiting period is alsotwo years for VA loans. That’s the same waiting period as foreclosure and other derogatory events. The VA’s minimum credit score (620) is a little lower than the FHA minimum.

  • Conventional Loans. If you’re willing to wait forfour years, you may qualify for a conventional loan. Four years is Fannie Mae’s minimum waiting period, and most other lenders follow Fannie Mae’s guidelines.

How To Maximize Your Waiting Period

Most loans have a minimum waiting period before you can borrow again after bankruptcy. You can take steps to make the most of your waiting period. This can put you in the best position possible when the wait is over.

Build Up Your Savings: Down Payments and Mortgage Insurance

Building up your savings is always a good first step. It will give you more flexibility later on whether you decide to buy a house or not. If you do buy a house, you’ll need a down payment.

The more you put down, the better off you’ll be. Paying more upfront can help you decrease your monthly mortgage payments and decrease the lender’s risk when you borrow.

A Note About Pre-Bankruptcy Savings

As a side note, if you’ve already begun saving for a down payment, filing bankruptcy may still be an option. Many states have a wild card exemption which protects savings accounts and other non-exempt assets. If that’s not the case in your state, you might want to talk to an attorney about how to protect your plans to buy a home.

Practice Budgeting

The waiting period also gives you a chance to practice financial discipline. As a homeowner, you’ll be responsible for all repairs and maintenance. So, in addition to the monthly payment, you’ll need a reserve to handle things like lawn care, air conditioner breakdowns, water leaks, and anything else that might come up.

Use the months between your bankruptcy discharge and applying for a home loan to track your money and practice using a budget. Act as if you’re already making your mortgage payment, and put away a little money each month for unexpected expenses. Use these few months to get in the swing of things so that you can transition to your new home and lifestyle smoothly.

Improve Your Credit Score

Improving your credit will take some time, but fortunately, you can catch your stride immediately, There are straightforward ways to get back on track.

  • Pay all your bills on time. A consistent, on-time payment record is the best way to build your credit score and credit history. That’s especially true for auto loans, credit card bills, and other accounts that lenders report to credit bureaus.

  • Get a secured credit card. A credit card is actually a great way to rebuild your financial profile. It may sound strange since you just discharged your debt. But, showing off good and consistent credit habits will make you a more attractive borrower. Charge something every month, and make more than the minimum payment on time every month.

Work With Lenders

Mortgage lenders have written rules for dealing with people who have prior bankruptcies. But in most other cases, like auto lenders, the rules are either unwritten or more like guidelines instead than commandments. Being straightforward about your history will help you get your best outcome.

  • Focus on your current financial track record. Most lenders only care about a person’s recent financial history. Unless there’s a written rule to the contrary, if it happened more than about six months ago, it’s probably not a big deal. So it’s very important to pay bills on time and work to rebuild your score.

  • Be upfront about your financial past. Before the lender runs your credit report, tell your story. Your fresh start is the latest chapter in a much larger story. You’re meeting with a lender to talk about what comes next. At worst, the lender will refuse to loan you money. If that’s the case, just go somewhere else. There are plenty of other lenders out there that will work with people with a history of bankruptcy. You just have to find the right one.

Let’s Summarize…

Bankruptcy may delay your goal of homeownership. But in the end, it will make this goal easier to reach. A few years after you receive your fresh start, your finances will probably look completely different. And that’s what mortgage lenders want to see. Once the required waiting period has passed, there are multiple financing options available to buyers after bankruptcy. It’s important to make the most of your waiting period by budgeting, saving, and rebuilding your credit score.



Written By:

Kristin Turner, Harvard Law Grad

LinkedIn

Kristin is a recipient of Harvard Law School’s Public Welfare Foundation A2J Tech Fellowship. At Harvard Law, she served as a member of the Harvard Defenders, the Women’s Law Association, and the Harvard Law Negotiation Review. She was the 2016 – 2017 president of the Harvard Bla... read more about Kristin Turner, Harvard Law Grad

It's easy to get help

Choose one of the options below to get assistance with your bankruptcy:

Free Web App

Take our screener to see if Upsolve is right for you.

Take Screener
10,000 families have filed with Upsolve! ☆
or

Private Attorney

Get a free bankruptcy evaluation from an independent law firm.

Find Attorney

Learning Center

Research and understand your options with our articles and guides.

Go to Learning Center →

Already an Upsolve user?

Read Support Articles →

News

    + Show Articles

    Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Spun out of Harvard Law School, our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can’t access their basic rights when they can’t afford to pay for help. Combining direct services and advocacy, we’re fighting this injustice.

    To learn more, read why we started Upsolve in 2016, our reviews from past users, and our press coverage from places like the New York Times and Wall Street Journal.