Q: I’m trying to buy my first home. I filed bankruptcy just last year due to a divorce. It was discharged six months ago.
Is there anyone who will give me a home loan? My credit score is 629 and I’m rebuilding credit with a credit card and a new truck loan. I have already found a house that I would really enjoy owning but my bankruptcy is interfering with my plans for homeownership. Please give me some advice.
A: In the new world of mortgage finance, there is a time-out period for those who have gone into bankruptcy, foreclosure or who have completed short sales or a deed-in-lieu of foreclosure.
Even if your credit score was high enough to qualify, you will have to wait up to five years (it could be longer, depending on your personal situation) to qualify for a conventional mortgage (one that Fannie Mae or Freddie Mac) or government-backed loan (FHA or USDA). Unfortunately, Fannie Mae, Freddie Mac and FHA are buying more than 90 percent of all loans on the market.
What does this mean for you? There simply aren’t many investors in the current mortgage marketplace who would be interested in taking a risk on a home buyer who is just six months out from his bankruptcy discharge.
Here’s an idea: Why don’t you see if the seller would agree to a lease with an option to buy (also known as rent-to-own) or would be willing to finance the sale of the home with seller financing.
In the case of a lease with an option to buy, you pay a non-refundable option fee (which may be renewable) and then settle on a monthly fee for leasing the property. You have the right to purchase the property at a later date, at a specific sales price, but are not obligated to purchase it. Once you find a lender willing to finance the purchase of the home, you can notify your landlord/seller to move forward with the purchase and sale of the home.
You can live in the property for 3 to 4 years, and then see if you can qualify for a mortgage. If not, you can live there another couple of years and try again.
The seller may be happy to receive your rent payments and can move on with his or her life.
If you find a seller willing to give you seller financing towards the purchase of the home, you might find that the seller is willing to do this to get some money now and payments over time until you are able to refinance the home and pay off the seller completely.
Ask your seller if he would be willing to do this, and then find a real estate attorney who can draft up a contract that protects you. There are risks in a seller financing situation for you and your seller, so be careful and make sure you understand what is going on and the risks you might be assuming.
Good luck, and let me know what happens.
UPDATE After this column was published, I heard from two lenders who tell me that they are now able to secure FHA financing for borrowers who had their bankruptcy discharged at least two years prior, as long as they don’t have any additional bad credit. Borrowers going through a Chapter 13 may be able to secure a loan as well. For conventional loans (those purchased by Fannie Mae and Freddie Mac), a different lender told me that he is able to secure financing 3 to 4 years after a bankruptcy has been discharged. If you have additional comments, please leave them below.
“On an FHA loan, you can buy a house after 2 years since a Chapter 7 bankruptcy was discharged provided you have no bad credit since bankruptcy. They would prefer to see if you have re-established some credit. On a Chapter 13, you can get a loan while going through a bankruptcy with the permission of the court using an FHA loan. As a loan officer, I have helped people to refinance their house to pay off the Chapter 13 bankruptcy under FHA.”
Really like your articles and information. You may want to check the length of time before a client can get a mortgage post BK. We have lenders who will do FHA at 24 months and conventional at 3-4 years depending on the circumstance.
Keep up the great work!
“The policy on conventional loans for Bank of America is is 2 years if putting 20% or more down. It is 4 years for putting less than 20% down. For FHA it is 2 years with a possibility of an exception after one year but never happens. FHA guides have not changed but conventional has gotten a little harder. I think your information is confusing bankruptcy with foreclosure. Buying a house after foreclosure can be anywhere from three years to 7 years depending on whether the property was investment or primary and how much money you are putting down. I will email you our guidelines to your personal email address. “
What if you have both a BK and a foreclosure…does anyone know how long you have to wait to buy a house then? I’m hoping with good credit since the BK and a decent credit score it’s two to three years….does any one have any info on this?
Do you know whether I can file bankruptcy and still keep my properties? I owe a condo and two four-plexes. I can make the payments because the rental income exceeds the mortgage payments. But I have $50,000 in credit card debt and medical bills and I can’ keep up with those payments.
I currently have a primary residence and an investment property that I would like to refinance to get a better rate and pay credit card bills. I am thinking of purchasing another investment property after the beginning of 2011 My credit is good. Should I wait to refinance or will it matter.
Back in late 2005, my wife bought a house with zero down (20/80). Something happened and we both refinanced the 2nd mortgage back in 2007. Our financial situation became even worst, and we ended up filing ch 7 bk. We included our house in the BK. Our BK was discharged on 09/09. My question is, how many years should we wait before we can buy a house again? At this time, we’re both working, and we’re in the process of re-stablishing our credit. We are trying our best to save money for a possible downpayment. Hope somebody can give me advise…Thanks a lot.
I filed Ch7 BK two years ago due to a divorce. i am now in a new relationship and we would like to purchase a home together. would like to know if there are any posibilities of that even happening?
why don’t you change your article now that you have better information.
I will be out of bankrupty 3 years Oct. 20th. The state I live in PA, requires you to be out of banruptcy for 4 years before they will finance a home for you. Each state is different. I found a guy in New Jersey that does FHA loans, and he said after 3 years, which is a few months for me, he can get me an FHA Loan. Also FHA requires a 3.5 percent down payment of the selling price. But the agent in New Jersey said with some creative financing they can roll that down payment into your mortgage.
All states are different. So call a mortgage broker in your state and find out what the rules are; you might be surprised. I know some people that got a loan after one year and they filed a Chapter 7. But please check with a broker in your state; they have good information, or if you know a good sharp real estate agent. Good Luck.