When the economy fell just over a decade ago, many of American’s lost their careers and their homes. And since then they have been struggling to bring themselves back to where they came from.
If you fall among the percentage of American’s who declared bankruptcy during this period in time, you are not alone. But you should definitely not think that it means you can no longer buy a house.
Do not let bankruptcy be the end of your home-buying journey.
Generally speaking, foreclosure leads to bankruptcy. Foreclosure means deficiency (or lacking). So, let’s say you owe $150,000 on your home still and in the foreclosure or sheriff sale, it is sold for $50,000. That means, realistically, you still owe $100,000 on the home.
Now, generally speaking, this final amount is unrealistic for an individual or a family to pay. So declaring bankruptcy to clear their name of the foreclosure and the deficiency.
While this may seem like the end of the line, it most definitely is not. First and foremost, there is a waiting period between declaring bankruptcy and applying for another mortgage to purchase a new home.
Here are the waiting periods for the four major loans available:
FHA Loans 2 years
*note: this 2 year waiting period is for Chapter 7 FHA Mortgage. You can actually be paying on a Chapter 13 Mortgage and still be approved.
VA Home Loans 2 years
Conventional Mortgages 4 years
USDA Home Loans 3 years
Once you have surpassed this time frame, you can then begin to entertain the idea of applying for a new mortgage. There are always exceptions to every “rule,” and this is the standard across the board. But at times, there are some circumstances where you can qualify for additional loans before this time period is up.
Now, these guidelines are when your foreclosure is tied up in your declaration of bankruptcy. The foreclosure waiting period for a conventional loan is seven years. But, depending on the period of time between the foreclosure and your declaration of bankruptcy (either before or after), you may qualify for a reduction in the waiting period.
Foreclosure then bankruptcy
When your house is foreclosed upon before you declare bankruptcy, things are much more simple. The waiting period begins at the date of the bankruptcy discharge date. For example, if your home was foreclosed in January 2005, filed for bankruptcy in October 2005, and the bankruptcy was discharged in December 2005- the waiting period begins in December 2005. Based on the standards for the conventional mortgage waiting period, you would be eligible for another mortgage in December 2009.
Bankruptcy then foreclosure
Sometimes the roles are reversed. Whether intentional or not, there are times where the bankruptcy discharge date is prior to the actual foreclosure date. When that happens, as long as your foreclosure is tied to your bankruptcy, your waiting period will still fall within the conventional waiting periods listed above.
This is slightly more complicated, but definitely still understandable in layman’s terms. It varies from loan to loan what the waiting period or leniency will be.
For more information on the exact waiting periods for your unique situation, please consult a mortgage consultant. Since each situation is different, it is important to understand exactly where you stand.