In some cases, you have exhausted your emergency fund, and have decided there is no option other than to file for bankruptcy to pay off your debt. You may decide to work with a bankruptcy attorney. Plus, you should know all real estate agents and mortgage lenders who have experience working with people with bankruptcy on their credit score.
When you declare bankruptcy, you may find it hard to improve your credit score and financial condition. Even worse, you may think you will never be able to buy a house again, but the reality is different.
Who wants bankruptcy? Of course, no one wants to fall into this drastic situation. But people dealing with financial troubles may think it is the only way to get out of debts and start from the beginning.
However, bankruptcy may minimize financial stress and allow you to focus on making positive financial decisions for your future. So are you ready to move forward and make your dream of owning a home come true? So, adopt the following strategies to achieve the goal.
You can buy a house approximately one or two years after filing for bankruptcy, only if you restore your credit and avoid new debt. Filing a Chapter 7 or Chapter 13 bankruptcy will impact your credit report and put a negative score on your credit. But it does not mean that you cannot buy your own house.
The standard type of bankruptcy is Chapter 7, in which the court wipes down your qualifying debts. In this case, your credit score is affected. If you file Chapter 7 bankruptcy, you have to wait for about four years after the court dismisses your bankruptcy to make you eligible for a conventional loan.
However, government-backed mortgage loans are more complex. You have to wait for about three years after your bankruptcies' dismissal to qualify for a USDA loan. At the same time, you have to wait for about two years in order to qualify for a VA or FHA loan.
Chapter 13 bankruptcy involves the restructuring of your debts. That means you have to make scheduled payments to your creditors. It does not have a substantial effect on your credit score. Moreover, you can keep your assets as well. While regulations for chapter 13 are less severe than Chapter 7, these loans also have a waiting period.
Conventional loans after chapter 13 bankruptcy usually require a waiting period depending on the court’s choice to handle your bankruptcy. Generally, the waiting period is about four years from the date you file bankruptcy and two years from your dismissal date.
While chapter 7 bankruptcy standards are relaxed for government-backed loans, USDA loans have a 1-year waiting period after filing for Chapter 13 bankruptcy. FHA and VA loans need a court to dismiss or discharge approval of your loan before your apply. However, the waiting period remains the same in both cases, whether dismissal or discharge.
Student Loan Payment Requirement
Must be included in the borrower’s liabilities regardless of the payment type or
status. The payment amount must be either:
▪ The greater of:
· ..5% of the outstanding balance on the loan or
· Monthly payment reported on the borrower’s credit report, or
▪ The servicer’s documented payment provided the payment will fully amortize
the loan over the repayment term period
A payment does not need to be included if written evidence supports that the
student loan debt will be deferred beyond 12 months of closing.
Include loans with payments starting within 12 months. Calculate threshold
payment as a rate of 5% of outstanding balance divided by 12 months. If credit
report payment is higher, use credit report payment. If current documentation
from student loan servicer reflects actual terms and payment for each loan,
the verified payments may be used even if less than the threshold payment
A permanent amortized, fixed payment is used when documentation supports fixed payment, interest and term.
Use .5% of the loan balance reflected on the credit report. Payment arrangements
that are deferred or non-fixed (Income Based Repayment (IBR), graduated, adjustable, interest only, etc.) may not be used.
Loans in Repayment Period
▪ If provided, use the credit report payment
▪ If credit report is incorrect, obtain student loan documentation from the servicer
to verify the payment used for qualification
Use the student loan documentation to verify the actual monthly payment. Borrower
may be qualified with a $0 payment if the documentation supports it.
Loans in Deferment or
▪ A payment equal to 1% of the outstanding student loan balance (even if this
amount is lower than the actual fully amortizing payment) or
▪ A fully amortizing payment using the documented loan repayment terms
Loans in Repayment
Use the greater of payment reported on credit report or .5% of the higher of original
or outstanding loan balance as shown on credit report.
Loans in Deferment or
Use greater of payment reported on credit report or .5% of the higher of original or
current outstanding loan balance as shown on the credit report.
Payment may be excluded if file contains documentation that indicates:
▪ Monthly payment is deferred and/or in forbearance and full balance of the loan will be forgiven, canceled, discharged or will be paid if qualified for an employment-contingent repayment program and
▪ Borrower currently meets requirements for the student loan forgiveness/cancelation program
Obtain documentation from the student loan servicer to show the loan will be forgiven, canceled, discharged or that the borrower qualifies and is approved under an employment contingent repayment program that will extinguish the debt.
Borrowers that are or were in Forbearance
New FHA Insured Mortgage Eligibility
Each Kentucky Home loan program for Conventional, FHA, VA and USDA government mortgage loans has slightly different guidelines when it comes to water tests, septic inspections, and pest/termite inspections. Here's a quick comparison of the general guidelines for each program.