Many people tell me that they think they can't buy a home because they have had a bankruptcy or foreclosure. That's not true. You need to wait for a minimum of two years – depending on the type of loan that you are doing and you need to re-establish your credit.
The minimum time periods after a bankruptcy vary based on the type of loan -
-FHA requires two years from the discharge date of the bankruptcy
-VA requires two years from the discharge date
-Conventional loans require four years
-USDA loans require three years.
There are a few circumstances that may allow you to buy sooner, but they are hard to document. Normally you need to prove extenuating circumstances and there are very few situations that will work. You are better off to plan on the normal time frame and take the time to re-establish your credit and save money for a down payment.
If your home was included in the bankruptcy, there are some different rules that apply. The typical waiting period after a foreclosure is seven years for a conventional loan. However, if the foreclosure was right before the bankruptcy and the home was included in the bankruptcy, the bankruptcy rules will apply. In this case, if you want a conventional mortgage, you will need to wait 4 years from the discharge date instead of the normal 7 years. However, if you filed bankruptcy and then your home was foreclosed on, you will need to wait 7 years from the date of the foreclosure.
Once you have filed bankruptcy, make sure you rebuild your credit. Start small – a small credit card and use it – but pay it down every month. If you leave a small balance, the credit bureaus know it's an active account and it may help your score. Make sure you keep the balance at less than 25-30% of the available credit. Your credit scores will improve as time passes. Creditors like to see more than just credit cards- car loans and student loans can also help your score – but make sure you make all the payments on time. Remember that your monthly payments will affect what you can qualify for, so you do not want to overspend if you are looking to buy a new home.
Keep your paperwork on the foreclosure and bankruptcy, your lender will need to see it. Frequently I have buyers that can't find any of their paperwork and we end up going back to the mortgage company, title company or lawyer to get the documentation we need. Many people think they don't need to keep the paperwork -or don't want to – but you will need it in the future.
Talk to your loan officer about what you need and how long you need to wait to buy. That way you are prepared and know when you can buy!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc, An Equal Housing Lender, NMLS#150953 - Email - Website
