Buying a Home After Bankruptcy

image of home foreclosureSome clients are surprised to learn that, after filing bankruptcy, they are actually in better shape to buy a home than they were before. They wonder, “How is this possible with my credit?” By taking care of debt through Chapter 7 or Chapter 13, it shows that a person is serious about getting their debt problems under control. It also frees a person from onerous credit card debt and other bills that make it impossible to save up for a down payment. While there are some restrictions immediately following a bankruptcy, within two years most people are able to at least examine the possibility of buying a house.

In Chapter 7 bankruptcy, a person must wait two years from their discharge date before applying for an FHA loan. This is a common type of loan that is backed by the federal government (commonly referred to as the Fannie Mae and Freddie Mac home loans). During that two year period, many clients are able to save money for a down payment on a home instead of throwing money at a credit card payment which never seems to go down.

During a Chapter 13 repayment period, a person will be able to apply for a loan after one year of satisfactory payments. However, the client will need to get approval from the bankruptcy judge to ensure that this new obligation does not interfere with a person’s payment schedule. Since it is vital for a person to stay on schedule to pay back their creditors, a judge will make sure the debt obligation will not be too much. A Milwaukee bankruptcy attorney can discuss your particular options and advise you on whether or not a judge is likely to approve your home purchase during your Chapter 13 case.

Each home loan application will require you to state the reason for your bankruptcy so the lender can assess your risk. For instance, if you were laid off from a job or suffered an illness without health insurance, they may see that Milwaukee bankruptcy protection was sought after an unavoidable, unforeseen circumstance. Just because a person has suffered one of these hardships does not mean they will automatically be denied the American dream of owning a home. Even after such a calamity, it is possible to save up for a home by getting your debt under control in a bankruptcy case.