How Long Do I Have to Wait to Buy a Home after a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy?
January 6, 2014
by: Jonathan Goldsmith Cohen
Happy New Year! Now is the time of year when many of us take stock of our short and long-term goals and sometimes question our holiday spending. Did I really spend that much in the month of December on eating out? Well, at least I had a great time being social. At any rate, my clients regularly ask me how long after a bankruptcy can they purchase another home. Here, I will lay out some guidelines with respect to purchasing a home after a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. This information is for guidance purposes only. How long does it exactly take? You will know for sure when you have approval on that new mortgage.
Chapter 7 Bankruptcy and Buying a Home
Chapter 7 Bankruptcy affords a complete discharge (forgiveness) on your debts such as credit card debts, medical bills and personal loans while retaining your assets such as your car, retirement accounts, cash, jewelry, and possessions.
With an FHA mortgage, you can purchase a home in as little as two years after a Chapter 7 Bankruptcy. That’s fabulous! FHA loans are backed by the federal government and allow you to purchase a home with as little as 3.5% down. So, two years post Chapter 7 Bankruptcy, you can purchase a home with an FHA loan.
Conventional Fannie Mae or Freddie Mac Loans
The majority of home loans are comprised of ‘Fannie Mae’ and ‘Freddie Mac’ loans. Fannie Mae and Freddie Mac loans can be bundled and sold in the form of mortgage backed securities to investors. With a Fannie or Freddie loan, there is a four-year waiting period after the completion of a Chapter 7 Bankruptcy to purchase a home. So all you need is four years post Chapter 7 to obtain a conventional mortgage.
Chapter 13 Bankruptcy and Buying a Home
Chapter 13 Bankruptcy is a reorganization that can mean paying as little as $100.00 a month to creditors from anywhere from 36 months up to 60 months. This payment is made to the bankruptcy trustee and distributed to creditors. There are many reasons to file a Chapter 13 Bankruptcy over a Chapter 7 case but I will save that topic for another post.
FHA Loans and an Active Chapter 13 Bankruptcy
Ready for this? For an FHA loan, if you have been in Chapter 13 for 12 months and your Chapter 13 payment to the trustee has been on time every month, you can apply for an FHA loan after one year of Chapter 13 payments. Amazing!
Fannie and Freddie Loans
Realistically, you are not going to get a conventional mortgage with decent terms while you are in an active Chapter 13 Bankruptcy. However, two years from the Chapter 13 discharge date is a good guide point to secure a Fannie or Freddie backed mortgage.