If you are considering bankruptcy, one of the things you might be weighing is the risk of being unable to take out a home loan if you try bankruptcy rather than other debt-resolution methods. It is possible to take out a Federal Housing Administration loan after bankruptcy, though you may have to wait a while before you do.
If you go through a Chapter 7 bankruptcy, then you will have a minimum waiting period of two years for the FHA loan. This waiting period begins when the bankruptcy is discharged and is also known as the “seasoning period.”
Is the two-year requirement firm?
Yes, and you should remember that it is a minimum requirement. However, most people who have gone through bankruptcy will be able to pursue a loan within around two years. VA loans, USDA loans, and conventional loans all have different timelines, so if one won’t work for you, you can attempt a different form that you may also qualify for.
What requirements do you need to meet for the FHA loan?
Some of the requirements you may need to meet include:
- Maintaining a credit score of 580 or higher
- Having a debt-to-income ratio of 50% or less
- Being able to show that you do have steady income and employment
- Showing that your income is expected to be steady for at least three years
- Having a down payment of 3.5% or more available
If you can do all of these things, then you may be in a good position to get an FHA loan as soon as two years following your bankruptcy.
I need to buy a home sooner, so what can I do?
If you want to purchase a home sooner than two years, you may want to consider a Chapter 13 bankruptcy rather than Chapter 7. There may be more leniency on timelines with this form of bankruptcy, since you’re required to make payments throughout the bankruptcy period and repay a portion of your debts.
Bankruptcy can help you get out of debt and become more financially stable. Consider it if you are looking to buy a home in the future but are dealing with significant debt now.