Facing bankruptcy can make a lot of people very scared about their future. They often hear horror stories about how hard it is to rebuild credit, and many wonder if they’ll ever be able to buy a home.
While bankruptcy is unquestionably a financial setback, it isn’t the end of your homeownership dreams. With a little bit of planning and some patience, you can absolutely get back on track toward your goals.
Understand the waiting period
Typically, there’s a waiting period between when you file for bankruptcy and when you’ll be eligible for a mortgage loan – and not all loans are created equal. Government-backed loans, such as FHA, VA and USDA loans, tend to be more lenient about past bankruptcies than traditional lenders. They also have more flexible credit requirements and lower downpayment options, so which can make them easier to obtain when you’re trying to financially rebuild.
In general, you should expect to wait one to four years after your bankruptcy is discharged before you can expect to qualify for a mortgage – but that gives you an opportunity to:
- Rebuild your credit: Start small, and build slowly. You can begin with a secured credit card through your local bank or credit card. Then, work your way up to a couple of lines of credit through unsecured cards and store cards (which are fairly easy to get). You may even want to consider a “credit builder” loan so that you can establish a good payment history.
- Save for a downpayment: In some ways, your bankruptcy is a gift of sorts. The money that you’d be devoting to minimum payments on all the debts that were discharged can be stored away for your future downpayment. Once your waiting period is over, that will put you in a more secure financial position to apply for that mortgage you want.
There’s no real reason to fear bankruptcy. Its effect on your credit can be negligible after just a few short years. Talking your situation over with someone who understands the process can make it easier to feel confident in your decision.