Filing bankruptcy can feel like the end of the road, but it doesn’t have to be. While you may have to delay future plans for a time while your credit and finances recover, it’s 100% possible to patch things up and eventually purchase a home.
All you have to do is wait for the bankruptcy to "season." The banks just want to know that you're not an unnecessary risk.
How Long Do You Have to Wait?
The waiting period depends on the type of mortgage you're looking for. Here are some details about the typical time frames for popular kinds of loans.
A conventional mortgage is a loan that isn't insured or backed by the federal government. It instead follows rules created by two of the biggest mortgage agencies, Fannie Mae and Freddie Mac.
As such, since it isn't backed by a third party, this loan type is typically going to take the longest for you to qualify for. Following bankruptcy, you'll probably have to wait anywhere from 4-5 years in order to qualify for a conventional loan.
Verdict: 4-5 Years.
An FHA loan, on the other hand, is government-backed. It's insured by (and named after) the Federal Housing Administration. FHA mortgages require lower credit scores and lower money down than a lot of conventional mortgages. Since it's easier to qualify for, though, you'll typically need to pay higher premiums.
That means more money is going toward your PMI per month. However, that's a good thing if you've recently filed for bankruptcy because it means you won't have to wait as long to qualify for an FHA mortgage.
Verdict: 2 Years.
If you're a current or former member of the military, there might be even better news. The Veteran's Administration is dedicated to providing discounts for American veterans. After all, if you spent time defending our country, it's only right that our country attempts to house you.
As such, in order to qualify for a VA loan, you're not going to have to wait as long as the other loan types.
Verdict: 1 Year.
How to Bounce Back from Bankruptcy
A wise man once said, "It's not about how hard you can hit. It's about how hard you can get hit and get back up."
1. Get a Copy of Your Credit Report
You need to be honest with yourself. You need to know exactly where you stand, financially.
Your friends might have told you that your credit won't take that big of a hit, and you probably believed them because it's exactly what you wanted to hear.
Use one of many online services to generate a credit report. If you have a Discover or Amex card, they'll even generate a monthly report for you.
It's important to slowly rebuild your credit. It's the number one thing that the banks are going to review to make sure that you're responsible enough to make home payments.
2. Start Building an Emergency Fund
Another wise man once said, "A part of all you earn is yours to keep. Pay yourself first."
In order to begin rebuilding your credit, it's a good idea to save up at least three months worth of expenses before you apply for a credit card. Your emergency fund will cover you in case some unexpected expense occurs.
Most people go through life unable to cover a $400 expense. If you want to avoid becoming a serial bankruptcy filer, you need to avoid becoming one of those people. Save up. Be ready in case disaster strikes. Because it often does.
3. If You Don't Already Have One, Apply for a Credit Card — and Start Planning
After you've built up an emergency fund (that you haven't dipped into to pay for a quick weekend vacation or a few extra drinks at the bar), it's time to apply for a credit card so you can begin rebuilding your credit. Start by putting just a couple monthly expenses, like water and electric bills, on it.
Also, start thinking about how much money you can afford to put down for a house payment, and how big your mortgage can be.
It might be important, at this point, to talk to an experienced real estate agent. They'll help guide you in the right direction when it comes to financing. The right agent knows all about finding great deals and negotiating with sellers.
Learn More: Connect with a Top-Rated Agent Near You!
A real estate agent will also help you organize the documents you'll need to eventually...
4. Shop Around for Mortgages
If you've been diligent in keeping your finances in order, it's possible to qualify for some FHA loans in as little as a year. Unfortunately, though, since you're coming out of bankruptcy, you should expect a higher interest rate than most other people.
If you keep rebuilding your credit, you'll qualify for better deals in no time.