How Long After a Bankruptcy Can I Buy a House?

Considering today’s tough economy, job market, and housing market, it’s no surprise that a lot of people are asking the question how long after a bankruptcy can I buy a house?

First, it’s worth noting that there’s not necessarily a limitation on buying a house, just on getting a home loan through a regular mortgage lender. It’s still possible to buy a house right away, but you’ll have to get a little more creative with how you do it.

Most mortgage lenders today require you wait a certain amount of time before you’ll be able to qualify for a new mortgage. How long the waiting period is depends on the circumstances surrounding the bankruptcy, the type it is, and the kind of mortgage financing that you’re seeking.

How Long After a Bankruptcy Can I Buy a House?

In today’s marketplace, most traditional bank mortgages are either Fannie Mae conventional or FHA financing – and both require you to wait for a period of time before you’ll be able to qualify for a new mortgage. The following is a rundown of the waiting period guidelines for Fannie Mae and FHA for Chapter 7 (debt liquidation) and Chapter 13 (debt repayment) bankruptcies.

Note that these guidelines are subject to change at any time and lenders will often add their own more stringent qualifying criteria to what you see here. Be sure to consult with a qualified mortgage professional for more specific information about your particular situation.

Fannie Mae Bankruptcy Waiting Period
  • Chapter 7: The standard waiting period to obtain a new Fannie Mae loan after a Chapter 7 bankruptcy is four years and is measured from the discharge or dismissal date of the bankruptcy. If you can document that significant extenuating circumstances beyond your control led to the bankruptcy, the waiting period could be reduced to as little as two years.
  • Chapter 13: The waiting period for a Chapter 13 bankruptcy depends on whether the bankruptcy was discharged (completed) or dismissed (not completed). If your Chapter 13 was discharged, your waiting period is two years. If it was dismissed, the wait will be four years. Fannie Mae guidelines allow for a reduction of the waiting period for dismissals to two years if significant extenuating circumstances beyond your control led to the bankruptcy and can be documented. There is no waiting period reduction for discharges.
  • Multiple bankruptcies: If you have more than one bankruptcy on your credit report in the past 7 years, your waiting period is 5 years from the most recent dismissal or discharge date. The waiting period may be reduced to 3 years if extenuating circumstances apply and can be documented.
FHA Insured Bankruptcy Waiting Period
  • Chapter 7: The minimum waiting period for an FHA insured mortgage is 2 years since the discharge date of the Chapter 7 bankruptcy as long as you have reestablished your credit and have not taken on new credit obligations. Like Fannie Mae, however, the wait may be reduced to twelve months if significant extenuating circumstances can be documented and you have since shown that you can manage your finances well.
  • Chapter 13: It’s possible to qualify for an FHA insured mortgage while in Chapter 13 as long as at least one year has elapsed since entering into the repayment plan, payments have been paid on time, and the bankruptcy court has given its permission for you to enter into a mortgage transaction. If your Chapter 13 has already been discharged, the standard waiting period is two years, but it’s possible it could be reduced or eliminated if you otherwise have strong qualifications.

A Few Words About Extenuating Circumstances

Though both Fannie Mae and FHA guidelines do allow for a reduction of the waiting period for extenuating circumstances, you may have a tough time finding a bank that will allow it as well.

What is considered “extenuating” can be awfully subjective, and lenders have a deep fear of being forced to “buy back” a funded loan from one of their investors because of a difference in opinion about what truly is extenuating.

Again, though the official guidelines say one thing, it’s not uncommon for lenders to add their own more stringent guidelines. Just because Fannie or FHA allows for certain extenuating circumstances doesn’t mean the lender you’re working with will as well.

Update 8/15/2013: FHA has added some new guidelines for home purchasers that may make it easier for lenders to underwrite and approve borrowers with extenuating circumstances. If your bankruptcy was the result of circumstances beyond your control (such as a job loss due to the bad economy), and you can document that you took at least a 20% loss of household income for at least 6 months, it may be easier for lenders to approve you for an FHA purchase mortgage even if you’re within the bankruptcy waiting periods. Be sure to check with your lender for more details.

For more information, you can check out the official FHA mortgagee letter here.

Work on Rebuilding Your Credit Right Away

If you’ve recently been through a bankruptcy, it’s important that you begin taking steps to rebuild your credit right away. Even if you had all your debt eliminated through the bankruptcy, there often are lingering issues that remain on your credit report, such as collections or charge-offs. Just because a debt was eliminated through bankruptcy doesn’t guarantee that the account will be updated accordingly on your credit report. The sooner you work to rebuild your credit, the more easily you’ll be able to qualify for new mortgage financing once the waiting periods are over.

For some ideas about how to rebuild your credit, be sure to check out my article How to Rebuild Your Credit After a Bankruptcy or Foreclosure.

Alternate Financing Options

A regular mortgage loan from a regular mortgage lender isn’t the only way to purchase a home. If you really want to purchase a home right away, you may be able to make it happen by getting a little more creative. The following are a few alternative financing options that have worked great for many people:

  • Seek a non-traditional financing source. Sellers, private lenders, and hard money lenders can be a great way to finance a home. Chances are you’ll pay a higher rate on the money, but you can always refinance it in the future once your credit improves and you’re past the waiting periods.
  • Look for lease-to-own or lease option programs. These types of programs are often offered by real estate investors who cater to buyers with damaged credit and have a rehabbed property they wish to sell. These types of programs may not be legal in all states and they can get complex, so be sure to do your due diligence.
  • Pay cash. If you have enough cash on hand to pay for the home outright, it might be worth it. You can always cash out a mortgage in the future once your credit has improved and you’re past the waiting periods.

A great place to track down alternate financing options to purchase a home is through local real estate investment clubs. Do a Google search for real estate investment clubs in your local area and consider attending the next meeting.

As with any situation where you’re working with somebody you don’t know well, be sure to ask for references and do your due diligence before getting into a deal.

Conclusion

This is just a very general overview and other guideline nuances can apply. For more detailed information about your particular situation, it’s important to consult with a qualified mortgage professional. It’s also important to note that though these are the standard guidelines for Fannie Mae and FHA, lenders that underwrite to Fannie Mae and FHA guidelines might add their own more restrictive guideline overlays.

Stay current with Mortgages By Mark! Get free email blog updates or subscribe to my RSS feed.

About Mark Fitzpatrick

Mark Fitzpatrick is a reverse mortgage professional with over seven years of experience in mortgage banking. In his spare time he enjoys reading, skiing, surfing, and spending time with his family and friends. You can stay current with Mortgages By Mark by getting free email blog updates or subscribing to my RSS feed. NMLS #382064.
This entry was posted in Mortgage Lending and tagged , , . Bookmark the permalink.

105 Responses to How Long After a Bankruptcy Can I Buy a House?

  1. Thanks for sharing, I wasn’t knowledgeable of any of this. A homebuyer doesn’t have to wait as long as I thought they would have to.

  2. Thanks for the article and hope to read from you again. Great job MbM.

  3. Pingback: Are Subprime Mortgages Making a Comeback? Investors Increasingly Snapping Up Subprime Mortgage Bonds |

  4. Pingback: How Much of a Down Payment Do I Need to Buy a House? |

  5. Todd Robertson says:

    If a borrower had a chapter 13 dismissed in September of 2010 will he be eligible for a FHA insured purchase loan?

  6. MbM says:

    FHA guidelines don’t specifically address a waiting period for dismissals, but I imagine that it is at least as much as the waiting period for a discharge, which is two years. Often it is possible to qualify before the two years has elapsed, but it would depend on extenuating circumstances and be evaluated on a case by case basis.

    Thanks for the feedback, and let me know if you have any other questions. Thanks!

  7. Pingback: How to Finance a Home: The Basics of Qualifying for a Home Loan |

  8. chad meyer says:

    I was discharged from my chapter 7 bankruptcy in march or may of 2010. I filed bankruptcy because i was involved in a car accident that left me in the intensive care unit of the hospital for 1 month and my insurance for my vehicle would not cover the costs. so i incurred over 300k in bills to the hosp. and private doctors. I now have recovered and have a decent job where i bring home about 650 to 750 dollers a wk after taxes and would like to start rebuilding my credit for hopes of soon buying my own homw without such high interest rates. can you give me some advice on where to start please?

    • MbM says:

      Hi Chad, thanks for the comments. The best thing to do is continue to stay current on payments and your credit will heal with time. Per FHA guidelines, you may be able to qualify for an FHA loan even now because it sounds like you have some significant extenuating circumstances and it’s been more than year. However, banks often add their own guidelines on top of the FHA guidelines, so it may be tough to find a bank that will do the loan though it may meet FHA guidelines. The best plan would be to wait for the full two years to reestablish credit and build up some savings.

  9. Michelle says:

    HI we had to file a bankruptcy. Chapter 13 repayment plan we have 2 years left. As part of the bankruptcy we also lost our home. We were under construction on an addition when i shattered my leg. So the lawyer said to let it go into forclosure. Right after we filed my leg gave way I fell and broke neck in 2 spots. Yeah I know bad year. Ok here is my ?. My husband and I make 11 grand a month. Our rent is 2. I know we can buy a house and hold a payment for much less. Are there investors out there willing to help if you are in bankruptcy that had a forclosure attacted to it. If so how do we find said investors. What should I expect as a down payment now. Any adivce would be great.

    • MbM says:

      Hi Michelle, thanks for stopping by! To get a loan you’re pretty much going to need to be out of the Chapter 13 and have at least two years history since the foreclosure. Lenders typically won’t do a loan if you have an open Chapter 13. A few years back it was possible to do a refinance with a Chapter 13 open, but the lender typically would require that you pay it off through the loan so that it was complete at closing.

  10. Ken says:

    I filed a chapter 7 and included the house. I am now trying to sell the house in a short sale. How long would I have to wait in order to buy another house? Do they take into consideration I filed bankruptcy and included the house or if it forecloses does that count against my record as well. Thanks.

    • MbM says:

      Hi Ken, thanks for stopping by! Chances are that the bankruptcy and foreclosure are both going to be counted against you.

      I had this come up recently in another scenario where the individual did pretty much the same thing as you did, but didn’t realize that the home eventually went into foreclosure after the bankruptcy went through. Once the foreclosure was discovered, the loan was declined because it hadn’t been long enough for the individual to qualify for a new loan after a foreclosure.

      I know it’s probably not the best news to hear this, but I’d rather give you the straight deal so you don’t start going down the road to getting a loan and discover well into the process that it’s not going to work.

      Best of luck to you!

      • Patrick says:

        What if I filed bk 7 chapter and included a house that was being foreclosed on while keeping another home that being paid as agreed, the house we kept in is income cash flow. Will we still have to wait because of the 3 years for FHA because of the foreclosure or since the foreclosure was included in the BK will we only have to wait 2 years?

        • MbM says:

          Hi Patrick, both the Chapter 7 and the foreclosure are going to be taken into account when determining the waiting period before you can get new financing. In other words, lenders are going to want to see that you’ve met the waiting period requirements for both before they’ll offer new financing.

          One thing that can come up as well is that even though the house was included in the BK, the foreclosure may not record for some time after the BK is discharged. If that is the case, the waiting period for the foreclosure will be calculated from the time the foreclosure is actually recorded on title.

          Thanks for stopping by!