If you are thinking about filing for bankruptcy, then you may be wondering if you will ever be able to buy a home before the filing disappears from your credit report (10 years for a Chapter 7, seven years after a Chapter 13). The answer is a definite yes, but you should generally wait a while after your discharge before entering into such an important financial decision. When you take some time to rebuild your credit and save up for a bigger down payment, you will likely get a much better deal.
Certain government-backed mortgage programs, which are intended to make home ownership more affordable, require discharged bankrupts to wait a certain period of time before applying. They include:
- Federal National Home Loan Mortgage Corporation (Fannie Mae): Unlike standard home loans, Fannie Mae financing does not require a 20% down payment. Decisions are made primarily according to applicant income. Former bankrupts may qualify once four years have passed since their discharge date.
- Federal Home Loan Mortgage Corporation (Freddie Mac): Like Fannie Mae, Freddie Mac uses income-related guidelines when making a decision, although your credit score carries the most weight. The waiting period for discharged bankrupts is two years.
- Federal Housing Authority (FHA): The FHA works with Freddie Mac and Fannie Mae to help low to medium wage earners afford their own homes. Applicants who have declared bankruptcy must wait for two years to pass after their discharge before they are eligible for an FHA loan.
- Veterans Administration (VA): Designed to assist honorably discharged veterans, the VA program has a two-year waiting period for bankrupts.
Even if you are not interested in getting a government-backed mortgage, it is still a good idea to get yourself in the best financial position to afford home ownership. This means running some numbers to determine how much you can reasonably afford in monthly mortgage payments. These will include principal and interest plus:
- Property taxes
- HOA fees (if applicable)
- Private mortgage insurance (if applicable)
Many financial experts recommend that no more than 30% of your monthly income be allocated towards your mortgage payments. If a bank or other lender offers you more, then it may be tempting to accept, but make sure that you don’t end up “house poor,” or contributing too much of your income towards keeping a roof over your head.
If bankruptcy appears to be the best solution for an increasingly unmanageable debt load, but you’re worried about future access to credit, then make an appointment to meet with an experienced New York bankruptcy attorney. Jayson Lutzky offers free initial in-office consultations. He is a Bronx personal bankruptcy attorney and has more than 34 years of legal experience. You will receive the information you need to make an informed decision and have a much more realistic idea of what your future prospects will be after your bankruptcy case concludes. Call 718-329-9500 to set up an appointment or visit www.MyNewYorkCityLawyer.com to request more information. Saturday appointments are available.