Filing for bankruptcy is often the only chance you have when it comes to getting proper debt forgiveness. Of course, going bankrupt to restart your financial life is not a fun process at all. Since you most likely didn’t make the payments on time, it’s possible that your credit report needs some serious work.
With recent bankruptcy on your credit report, getting a credit card can be tricky. There are other hurdles you will encounter, such as getting personal loans after bankruptcy for medical bills or having only limited mortgage options. This might make you wonder: Can you buy a home after bankruptcy?
You can (but there are a few catches!). Let’s take a look to see what options will be available to you.
credit after bankruptcy
Filing for bankruptcy can wreak havoc on your financial history, even if you started out with excellent credit. You will immediately notice your credit score drop by 100, 150 or even 200+ points!
Having bad credit makes securing most types of loans impossible, leaving you with a limited pool of private lenders to work with. Unfortunately, many of the private loans available to those with a low credit rating are APR nightmares, with high monthly repayments.
For example, let’s look at the rates of OppLoans, a company that offers private loans to those with bad credit. Even though your loan application may be approved, it is likely that the loan will not be worth the debt you will incur. ARP loan terms from OppLoans vary widely, from 59% to 160%!
Let’s say you had $10,000 of medical debt that you wanted to fund over three years. With an APR of 160%, you’d end up paying $48536.03. Of this total, only $10,000 is the amount funded; 38.536.03 remaining are all benefits!
To avoid filing for bankruptcy again in the future, it is essential that you avoid obtaining these types of high-interest loans with exorbitant payment requirements. Likewise – once you have a mortgage – it is important to make sure that the amounts of your monthly mortgage payments are sustainable over the long term.
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Can you buy a home after bankruptcy or do you have to wait?
First, you will need to wait for a bankruptcy attorney to arrange everything. Immediately after you receive your bankruptcy discharge, you will not be eligible for any type of mortgage.
You will need to wait a bit before you can get a mortgage. How long you will need to wait depends entirely on the type of your bankruptcy file. Let’s take a look at how filing for different types of bankruptcy can affect your financial timeline.
Chapter VII bankruptcy
The waiting period applicable to obtaining a loan after Chapter 7 bankruptcy depends on the type of mortgage you are trying to finance. To qualify for the loan programs offered by private mortgage companies, you will need to wait at least 4 years before submitting a mortgage application.
However, you will be eligible for government owned loans before you are eligible for private loans. USDA loans require a three-year wait; There is a two-year waiting period for FHA and FHA loans.
Chapter 13 Bankruptcy
The legal process is slightly different for Chapter 13 bankruptcies, as is the waiting period. How long you should wait to get a loan after a Chapter 13 bankruptcy depends on whether your bankruptcy was denied or discharged.
- If your bankruptcy evictionThen there is a four-year waiting period before you can apply for a conventional mortgage.
- If your bankruptcy dischargedthen you would need to wait four years from the date of application and two years from the credit withdrawal before applying for a conventional mortgage.
Fortunately, it won’t take long to get a government-backed loan. USDA loans require a one-year waiting period; You are eligible for FHA and VA loans immediately upon bankruptcy denial or discharge!
The long-term credit effects of bankruptcy
The bankruptcy process is so detrimental to your credit that it remains on your credit report for 7 (Chapter 13) or 10 (Chapter 7) years after the filing date. As mentioned above, this will restrict the type of loan, its terms, and the annual interest rate for which you are eligible. It is likely that you will not meet the minimum credit score requirements for many loans.
Even if you meet their credit requirements, it is essential to avoid creating unnecessary credit accounts after filing for bankruptcy. If you do anyway, now is the time to build proper credit habits. Never fund more than you can handle with your monthly account, and avoid making late payments.
Building Credit While You Wait
It is important to pay your bills on time. You can help improve your credit history with on-time payments, but most of your bills don’t affect your credit score. Fortunately, there are lines of credit designed specifically for this.
Opening a secured credit card will allow you to improve your credit without having to apply for traditional loans. Unlike the unsecured debt of a personal loan or traditional credit card, secured cards only give you a line of credit based on your deposit amount.
Basically, they are debit cards that act like credit cards! Using a secured card will help you prevent excessive credit card debt, as your initial limit will never be higher than the amount you can deposit.
These credit card companies still report your payments to the credit bureaus, allowing you to build your credit for future loan approval and more expensive mortgage payments.
If you are hoping to finance a home after bankruptcy, you must improve your credit before you can begin looking at the different types of mortgage loans.
way to build your wealth
If you can afford it, investing is a great way to accumulate wealth while waiting for the waiting period to pass. Although – during the waiting period – you will not qualify for a mortgage, this does not prevent you from making a real estate investment!
You can start investing in real estate using services like Fundrise with as little as $500! If you’ve got more in the bank, Yieldstreet is an option that has historically offered investors a net annual return of 9.71%.
Online crowdfunding services like these allow you to easily start making real estate investments. These types of investments often yield significant returns over a period of more than 5 years, perfectly compliant with mandatory waiting periods and set you up for success.
Can You Buy a Home After Bankruptcy?: What We Learned
Yes, you can buy a home after bankruptcy, but it takes effort, time, and planning. You will need to open multiple lines of credit, establish a positive credit history, and stay within your credit limit to improve your credit.
Once the mandatory waiting periods have passed and you have established an excellent credit score, you will be able to secure a much lower monthly mortgage payment. Although this process is time consuming, it is worth the wait. build your credit, invest appropriately, and save when possible; You’ll be able to finance your next home soon enough!
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