Buying A Home After Bankruptcy
Q: My husband filed Chapter 7 bankruptcy. His job was reduced from 50 hours a week to 24 hours a week and he had huge credit card debts. My babysitting hours were reduced down to nothing.
Our house was not included in the bankruptcy and we are now looking to relocate for his new job (which he has had for 10 months) and sell our home.
We are doing better financially and hope to clear around $15,000 to $20,000 on our home sale after expenses.
Can we get a home loan this soon after bankruptcy? Will we have to rent? What should we do? Do we qualify for and federal assistance?
A: I’m so sorry that you and your family have been swept up in the worst financial firestorm since the Great Depression. So many families find themselves walking the same mile as you are, although since it sounds like you might have a little home equity, you’re a few steps ahead.
You should attempt to sell your home. Hopefully it will sell quickly. If not, you should consider leasing it (if you can) so that you have enough income coming in to cover your expenses. Then, rent a home in your next location.
Unfortunately, due to the bankruptcy, your husband will not qualify to get a home loan backed by Fannie Mae, Freddie Mac, or FHA for the next two to three years – at the earliest. It could even take him up to five years to qualify for a loan.
Also, depending on where you move, you may find that renting a home is less expensive than owning a home. You also may find that renting a home gives you more flexibility and allows you to explore a community before buying into it.
Because your husband filed for bankruptcy alone, if you had a full-time job and good enough credit, you might be able to qualify for a home loan based on your income alone.
But I’m guessing your husband is the main breadwinner in the family. Take these next few years time to find a place to rent and a place that will allow you to save up cash for your next down payment and emergency funds.
If you do walk away with some funds, and do not have to use them to pay off any other debts were not part of the bankruptcy, put them into a safe, liquid investment, like a money market account and simply watch your funds grow.
While it seems as though the government is providing handouts to everyone, I can assure you that is not the case. Since you can’t qualify for a home loan, you will not be able to take advantage of the $6,500 trade-up home buyer tax credit. I don’t know of any other tax credits you would qualify for at this point in time.
Read more about coping with bankruptcy