Friday, 8 January 2021

How To Buy A House After Chapter 7 Or Chapter 13 Bankruptcy


I'm going to share some insights here as to how to buy a house or get a mortgage after a bankruptcy. Individuals who have a recent bankruptcy that is trying to either purchase a new home or refinance the home that they're in, I want to take you through all the different types of mortgages, how long you have to wait, and also some examples or mortgages where you don't have to wait very long to either refinance or purchase your house 




The Difference Between Chapter 7 And Chapter 13 Bankruptcy

The first thing is to understand the difference between chapter 7 and chapter 13 bankruptcy, and it's really simple. Chapter 7 bankruptcy is essentially a liquidation of your assets, and even still with that oftentimes you can still retain your home. Chapter 13 it's essentially a reorganization of the debt and you make payments against it. So that's kind of the difference on the surface. There are many more differences that we could dive into another time. But right now, we're going to focus on how you can purchase a home after you've had a bankruptcy




Conventional Loan

The most common mortgage that people apply for is conventional. And for a conventional loan if you've got a chapter 7 bankruptcy you're going to have to wait 4 years before you can get a new mortgage, and if you have a chapter 13 you can wait two years. So there's the difference between the two. Even after waiting for two years, you're going to have to show that you've improved your credit, you're making payments on time against your payment plan for the bankruptcy, and you're going to have to get the trustee involved as well. So that's for conventional loans




FHA Loan

For many people after bankruptcy, you're not going to have a lot of money set aside for a down payment. So as a result, an FHA loan is something that many people will try to use to finance their new home. The problem is that with an FHA loan those guidelines will require a minimum of two years to pass after a chapter 7 bankruptcy. Plus, you'll need approval from the trustee and the lender


Chapter 13 can be reduced to one year, but again, you have to be showing just like in the other scenario with conventional you have to be showing that you've been making payments and that your credit is improved. And you're basically getting an exception as long as you meet some of those other conditions, it's not always easy to get. So it's a long shot even with chapter 13 to be able to get the mortgage before your two years have expired. so hopefully that's clear 




VA Loan

VA loans for veterans and active military, the wait time is essentially the same as FHA. 




How Do You Prepare For A Mortgage After Bankruptcy?

Well, the first thing is you have started making on-time payments, you have to improve your credit, you have to change whatever it was that led you to bankruptcy. And I know a lot of people like to say, well, I've had an unfortunate situation in my life or this happened to me it's not my fault. And you know what? There are some situations where some people find themselves that was beyond their control. Maybe they had a medical thing happen and they lost their job because they were in the hospital and couldn't make the payments those things happen.


But what I also find is that a lot of individuals end up in bankruptcy because they're just not good with money and they're not good with managing their credit and they overextend themselves, they have no safety net at home, they don't have any reserves, and one little bump in the road next thing you know you're not able to make your payments. So that's what I see typically.


So what you need to do if you want to reapply is you have to show that you're back on the right track. Now that's going to be the case where regardless of whether it's a conventional FHA or VA loan.




Getting A Mortgage After Bankruptcy Without Having To Wait For Years

I told you before the article started that there are ways to get a new mortgage without having to wait. In fact, there are a few lenders that will refinance your property or will allow you to get a new mortgage on a purchase just one day out of bankruptcy. You know, if it was discharged yesterday, you could apply today.


However, you still need to have improved credit scores. Don't expect to be getting this mortgage with a 550 credit score, and you need to show that you've been making on-time payments-especially if you've had the bankruptcy time has lapsed, and now you're you still have a mortgage on your existing home you need to show that you've been making on-time mortgage payments. 


The other thing is that your down payment is going to be likely at least 20% as I wrote this article, this is what the situation is today. By the time you're reading this article, you might be reading six months or a year, two, three years down the road, and maybe the down payment requirements are less or more, maybe the credit requirements have changed.


This can be done, you definitely going to pay a little bit more an interest rate also so. In addition to the 20% down payment, now this is really essentially a subprime loan, and you can expect to pay a couple percentage points higher than a conventional loan if you had good credit. 






Conclusion

That's part of reality and part of life because you filed for bankruptcy. But it does get you into the home you're trying to purchase, it does get you to refinance you need to make. So again, there are options for you.

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