Wisconsin’s real estate market is red hot. The median price of a home in the Milwaukee region shot up to over $268,000 over the summer. It has since fallen off a little bit, but prices remain at historic highs. This is good news for sellers, but not so good for buyers. Many would-be buyers have struggled to find homes they can afford.
Milwaukee area home buyers are also facing rising mortgage rates. After dropping to historic lows after the 2008 recession, and remaining low because of the pandemic, they are beginning to creep up.
According to the Wisconsin REALTORS Association (WRA), “The increase in the mortgage rate combined with rising home prices pushed affordability down. The Wisconsin Housing Affordability index fell 18.1% in October 2021 compared to October 2020.”
This does not sound good, but they went on to note that, “Still, a qualified buyer with a median family income, a healthy 20 percent down payment and with the remaining balance financed with a 30-year fixed-rate mortgage can afford to buy 188% of the median-priced home in the state in October. This compares favorably to the national index for September with the latest monthly figures available, which shows that the typical U.S. buyer can only purchase 151% of the median-priced U.S. home.”
The problem is not everyone is the sort of “qualified buyer” they describe. Most mortgage lenders won’t work with someone who has filed for bankruptcy for a period of time ranging from one year to four years after the bankruptcy case was closed. The length of the waiting period depends on the type of bankruptcy filed and the type of mortgage sought.
Filing for bankruptcy under Chapter 7 involves liquidating a debtor’s assets and using the proceeds to pay off creditors. Most remaining debts are then discharged, or forgiven.
Conventional lenders will typically not lend to someone who filed for Chapter 7 bankruptcy for four years. The waiting period can drop if the debtor can show their financial troubles were due to extenuating circumstances, and they are now in a better financial situation.
Some borrowers may prefer to apply for a FHA or VA mortgage. The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD). The agency requires borrowers to wait two years after a Chapter 7 bankruptcy before getting an FHA mortgage. The Department of Veterans Affairs (VA) also requires Chapter 7 filers to wait two years before receiving a VA mortgage. Both agencies may shorten their waiting period if the borrower can prove extenuating circumstances.
A Chapter 13 bankruptcy is a court-supervised repayment plan. Borrowers don’t typically liquidate their assets to pay off debts, instead, they work to repay the debts they owe a little at a time. At the end of the years-long court-supervised repayment period, some remaining debts may be discharged.
A would-be home buyer who wants a conventional mortgage will need to wait two years after the close of their Chapter 13 case to apply for a mortgage. However, it may take longer than that for someone who has filed for bankruptcy to build up their credit score enough that a conventional loan is accessible to them.
If an FHA or VA mortgage is an option, a Chapter 13 filer can get one 12 months after their case is filed if the bankruptcy court okays it.
Past The Waiting Period, But Still Waiting On A Mortgage
Even after the required waiting period has passed, people who have filed for bankruptcy are often offered higher rates and lower borrowing limits than other people. This is one of the reasons why bankruptcy is not something you should rush into. There are definite downsides to it.
If you are in financial distress, the experienced Milwaukee-area bankruptcy attorneys at Hanson & Payne can counsel you on your options, and work with you to find a path forward. Please contact us today to schedule an initial meeting with our team.