If I file Bankruptcy, how long must I wait before I can buy a home?
Part 1: Chapter 7 and FHA Loans
FHA requires that, "At least two years must have elapsed since the discharge date of (your) and / or (your) spouse's Chapter 7 Bankruptcy.A full explanation will be required with the loan application. In order to qualify for an FHA loan, (you) must qualify financially, have re-established good credit, and have a stable job."
So basically, for most people, a wait of two years from the end of your Chapter 7 bankruptcy is required. Additionally, you are going to have to explain to the lender why you had to file for bankruptcy in the first place. Then, of course, just like with anyone applying for a home loan, you are going to have to have decent post-bankruptcy credit, a good job, and be able to demonstrate that you can make your payments. In my experience, most people fall into this category and are able to purchase home after the initial two year wait.
Under "extenuating circum-stances", including the death of a spouse, loss of employment, or serious long-term illness, etc. (but not including the inability to sell a house when transferring from one area to another), you may be able to obtain a loan one year after the discharge. The FHA requires that, "the bankruptcy was caused by extenuating circumstances beyond (your) control and (you have) since exhibited an ability to manage financial affairs and (your) current situation is such that the events leading to the bankruptcy are not likely to recur." In essence, if you had a really good reason for filing bankruptcy (think illness or death), you might be able to cut that two year wait in half.
So, as you can see, even with something as monumental as purchasing a home, a bankruptcy is not the 7 to 10 year banishment that many people think it is. Stay tuned for next issue's installment of this series, entitled: Chapter 7 and V.A. Loans.
Courtesy of Amy Spencer-Martyn
Spencer-Martyn Law Offices
Redding, CA 96002
This information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.