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After Bankruptcy

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Aug 2013

How soon after bankruptcy can I buy a house again?

Posted by / in After Bankruptcy / 42 comments

How soon after bankruptcy can I buy a house again?

Sooner than most people think.  And for some, it just got even better.    That’s because of a new policy from the Federal Housing Administration, announced by FHA Commissioner Carole Galante.

Under that new policy, some people can get approved to get an FHA backed mortgage as soon as one year after the bankruptcy.  (Here’s that announcement, August 15, 2013, 13-26ml   Or here.)

Under the new FHA policy, how soon after bankruptcy can I buy a house again?

How soon after bankruptcy can I buy a house again?  Carole Galante just made it easier.

How soon after bankruptcy can I buy a house again? FHA Commissioner Carole Galante just made it just one year for some people.

It has to be one year after the bankruptcy discharge…and if you lost your previous house, it has to be one year after the shortsale, foreclosure or deed-in-lieu.  Whichever is last.  (So if you file bankruptcy in July 2013, discharged November 2013, but the mortgage company doesn’t get around to foreclosing until February 2014, your waiting period starts in February 2014, not November 2013.)

There are some other rules.  Here’s the big one.  Your bankruptcy–and your loss of your previous house–has to be because of a six month loss of income of at least 20%.  Job loss, major pay reduction, or maybe you lost of a lot of time from work for medical reasons, or something like that.  The FHA calls that an “economic event.”

Before the crisis lot of people got slammed into mortgages they just couldn’t afford–that won’t get you the one year rule. That’s not an “economic event.”  Kids got too big for the old house–that won’t get you the one year rule, either.

What about marriage break up?  The way I read it, eligibility depends on household income.  If both spouses were on the old mortgage, and were working, and they split up, then the “household” income dropped.  The way I read it, that’s an “economic event” that gets you the one year waiting period.

What else do you have to do?  You need to show you had good credit before the “economic event.”  Before you had that job loss or paycut, or break-up, you needed to be pretty much current on everything.  If you were dragging around bad credit even before you took that paycut, you can’t get in that one year policy.

Finally, after bankruptcy, you need at least twelve months of paying everything on time.  That’s twelve months of good credit, or, the way I read it, having twelve months of no credit at all.  You just can’t have bad credit.

(This makes your after bankruptcy credit report even more important.  I’m one of only a handful of bankruptcy lawyers who works with you to check your after bankruptcy credit report.  If somebody hits your credit after the bankruptcy, and disputes don’t fix it, I sue.  That problem is a lot less common then it was ten years ago, when I started suing.  But it still happens.)

And you also have to be counselled by a housing counselor.  I’m sure your mortgage company will set you up with someone.

What if you don’t have that “economic event”–the loss of 20% or more of your income.  You still have the same question.  How soon after bankruptcy can I buy a house again?

foreclosure

The waiting period starts when the house is actually foreclosed–often months after the bankruptcy is over.

That rule is two years after the bankruptcy discharge, two years after s shortsale or deed in lieu, three years after a foreclosure.  That’s found in the FannieMae Selling Guide, look at page 486.  Those rules are if there are “extenuating circumstances.”  ”Extenuating circumstances” don’t have to be as specific as the 20% loss of income that counts as an “economic event.”  But there has to be some actual hardship–not just a strategic default.  If you just decided to not pay, the rule is seven years.

Here’s one thing I need to say again.  If you gave up your house in the bankruptcy, the waiting period starts from the time of the actual foreclosure.  Not from the date of the bankruptcy, or the date you moved out.    From the date the bank actually sold it.  That can be three or four–even six or eight–months after the bankruptcy discharge.  That’s one reason I tell people, don’t move out.  

 

 

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Robert Weed has helped twelve thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

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42 comments
  • Shannon Alamia

    January 11, 2014, pm31 3:34 PM
    01

    My husband and I filed bankruptcy in 2012, it will be discharged in June 2014. Our mortgage and equity loan was included. Do we still have to keep paying those loans? And what happens if we just want to stop paying and walk away? Can they but bankruptcy and foreclosed on our credit report? We want to sell our house but the market has dropped so low that we can’t sell for what we owe. We only have to two bedroom home with 2 girls that need their own rooms, we would like to get a loan for a new house but if we can’t sell our current home for what’s it’s worth, what can we do? We need answers if you can give us some advice. Thanks

    Unfortunately the attorney we used is unwilling to help us any further, she did not feel comfortable with the questions we were inquiring

    PS We filed Chapter 7, I forgot to mention that! Shannon

    • Robert Weed

      Robert Weed

      January 11, 2014, pm31 4:11 PM
      02

      Shannon:

      I looked you up. It was discharged June 2012. So June 2014 will be two years.

      It looks like your mortgages were with Bank of America, Countrywide originally.

      The bankruptcy still protects you if you stop paying. In Virginia it usually takes about six month for them to foreclose and boot you out if you stop paying. Most other states it’s longer; I don’t know anything about Illinois.

      The good news is that two years after the bankruptcy, you can get a mortgage. That’s if you did NOT own a house when you filed the bankruptcy.

      But the BAD NEWS is it has to be three years after this house forecloses. You credit report should be showing bankruptcy–if you have been paying, or if you haven’t, bankruptcy should be the last thing it shows. This is where I explain how to check. http://robertweed.com/2013/08/20/the-credit-report-you-need-is-the-credit-file-disclosure/.

      But if you stop paying, there will still BE A FORECLOSURE, and your eligibility to buy again runs three years from then. Some people can get approved sooner. To get in under the one year rule, you need to show a major “economic event.” I explain that here. http://robertweed.com/2013/08/30/how-soon-after-bankruptcy-can-i-buy-a-house-again/.

      For most people, three years after the foreclosure.

      So, you can stop paying and give up the house without doing any damage to your credit score. You can probalby live for six months or more for free in the house before you have to move. But you have to rent for three years before you can buy a house again.

      Hope I answered your question.

      • Shannon Alamia

        January 11, 2014, pm31 4:21 PM
        03

        Is the reason it does not hurt our credit score because they can’t double dip, by putting bankruptcy and foreclosure?

        • Robert Weed

          Robert Weed

          January 11, 2014, pm31 4:25 PM
          04

          Shannon:

          Exactly!

          • Shannon Alamia

            January 11, 2014, pm31 4:33 PM
            05

            Thanks so much, this information was very helpful!!

          • Shannon Alamia

            January 11, 2014, pm31 7:46 PM
            06

            Can you tell me this, if we get a loan for a house after June, and rent out our current home. If at some point the renters can’t afford the payment and neither can we, will the home we purchased be in jeopardy?

      • Roberta ferraioli

        February 5, 2014, pm28 11:58 PM
        07

        My moms house is paid off and wants to transferr the deed to my name. I went bankrupt 4 years ago. I’m just concern that it would to ok

        • Robert Weed

          Robert Weed

          February 6, 2014, am28 11:37 AM
          08

          Roberta:

          There’s no problem with your bankruptcy if mom give you the house four years later. The law books are full of reasons your mother shouldn’t do that.

  • Robert Weed

    Robert Weed

    January 11, 2014, pm31 7:50 PM
    09

    Shannon:

    Good thinking. Yes there are some mortgage companies who will give you a new loan once you are two years out of the bankruptcy, if you can show you have paid the existing mortgage on time; and if you can show ti’s now rented at enough to cover the mortgage. Then later on, if you decided you did NOT want to still be a landlord, you could stop paying the mortgage, let the “rental” go to foreclosure, and the bankruptcy would still protect you (and protect your new house.)

    • Shannon Alamia

      January 11, 2014, pm31 8:10 PM
      10

      Another question, if both our mortgage and equity line of credit went into bankruptcy do we still have to continue paying on the equity? And do we have to include that in the selling price of the home?

      • Robert Weed

        Robert Weed

        January 12, 2014, pm31 12:15 PM
        11

        The home equity loan after bankruptcy is still attached to the house. So you can’t sell it unless they agree. If they agree to take less than all you owe them, that would be a “short sale.”

        Whether you “have to” continue to pay depends on what you are trying to do. I often tell people to pay the first, don’t pay the second, and see how long that works. I call that nerves of steel. you can read about that here. http://robertweed.com/2010/03/25/after-bankruptcy-what-if-i-dont-pay-my-second-mortgage/

  • Casandra

    January 17, 2014, am31 6:16 AM
    12

    Me and my husband are filing a joint bankruptcy because I have debt of medical bills before i was even 18 because my father did not have health insurance on me! I also have most of my debt because someone stole my identity I have filed a few different police reports about it! My husband and I wound up homeless and our vehicle we were paying on and he has a few other things on their that are medical bills from when he was a child do we qualify for the one year?

    • Robert Weed

      Robert Weed

      January 17, 2014, pm31 9:16 PM
      13

      Cassandra:

      You sure sound like the kind of person bankruptcy can help!

  • Teresa

    January 19, 2014, pm31 8:50 PM
    14

    My husband and I are currently in a Chapter 13 which started November 2010 and due to end November 2015. We are paying back 100%. We did receive an interest rate reduction for our cars and a furniture bill. Our home was not in arrears and student loans have been put on hold. We would like to purchase a new home. We have received so much confusing information in the last 3 years about when or if we can purchase a home. We have received information that we could purchase while still in Chapter 13 to waiting 2 to 4 years after discharge. We have spoken to different builders and one told us to start reestablishing our credit with credit cards and that’s what we are doing.

    In case you are wondering why we filed to begin with….we were late with credit cards because my husbands second job was paying irregular. It was guaranteed money but we were not the best at managing money so our attorney said ok. We were told since we are paying back 100% we can pay extra. Our real concern is…If we get credit scores up and we have not been late on mortgage in over 2 years and we have stable jobs…When can we really get another house? We currently have FHA loan but we want to use our VA eligibility like we did on our very first home….We are both veterans.

    PS…we have gotten the runaround about even refinancing our current FHA ((ARM) so we stop trying..Thankfully the rate went down to 4.5 ARM for now anyway.

    • Robert Weed

      Robert Weed

      January 20, 2014, am31 10:57 AM
      15

      Teresa:

      Yeah, I’m confused, too. At least some people have told me, like they have told you, that you should be able to after you have made your Chapter 13 payments on time for more than two years. Now you need to be able to SELL the house you have, so I’m assuming there’s enough equity that you can sell it.

      But I’m not a lender, so I can’t approve you for a loan.

      Your story is another reason I HATE to put people in chapter 13.

  • Teresa

    January 20, 2014, pm31 2:49 PM
    16

    Mr. Weed,

    Thank you so much for your response. Wish we would have found you before now….but lesson learned…not to be repeated. Maybe we can help someone else down the road and direct them to you since were are in VA also….thanks again.

  • Tiffany

    January 21, 2014, am31 12:41 AM
    17

    Dear Mr. Weed,

    My husband and I reluctantly had to file Chapter 7 last year and it was finally discharged on November 19th, 2013. The reason for us having to file for bankruptcy in the 1st place was due to my husband losing his higher paying job, due to the economy taking it’s turn and me getting hurt and becoming disabled. Therefore the majority of the “write offs” were medical bills. We are in the process of getting in a MUCH better place, thankfully, however we are wanting to buy our own house so we have something to show for all of my husbands and my hard work one day. Recently, we applied for a loan through Quicken Loans and were denied, we are sure this was due to our bankruptcy. We have since the bankruptcy been trying to re-establish our credit by obtaining a credit card and paying off the full balance as soon as it is due. As well as little things like magazine subscriptions and paying their bills off as soon as they come in. Etc. Etc. Etc. Today I talked to a Realtor through RealEstate One and he told me that we are doing it all wrong. He said that we should only pay down to a $10 balance each time and that will help to “boost” our credit even faster?. Also that we can not buy our own home for at least another year?. We just want to be able to buy our own home, for us and our 4 children. Isn’t there something or someway that a family of 6 in Michigan can get some kind of help to buy their 1st home WHILE trying to rebuild their credit? Some kind of government help or something? Or no? We just would like another opinion on this versus a “he said no so it’s a no” type thing.

    Thank you for your help and time in advance as we really were looking forward to this and then today….that gentleman from RealEstate One just truly “broke my heart”….I guess I shouldn’t have been looking so prematurely.

    -Tiffany

    • Robert Weed

      Robert Weed

      January 21, 2014, am31 12:47 AM
      18

      Tiff:

      You need to be discharged for at least two years to get approved for a mortgage. (That’s assuming you didn’t have a house in the bankruptcy.)

      Unless, like I say here, you can show the sudden loss of income, and everything was current before that. Then it can be one year. (That’s a new policy and I don’t know anyone who has done it. All I know is what I have here on my blog.)

  • Cristy

    February 3, 2014, pm28 10:57 PM
    19

    Hello Mr. Weed,
    I have a rather odd circumstance that I am hoping you could give me some advice on. I completed a Chapter 7 Bankruptcy in 2008. The home that I lived in was siginficantly under water due to the burst in the housing bubble, I had only owned it 2 years (it was an older home I purchased after a sudden divorce). The house was included on the bankruptcy but I continued to make payments until the money pitt of a house finally forced me to move (black mold buckling the kitchen floor, out of code electrical wiring, etc.) there was just no money left to fix it and no equity in which to borrow against to fix it. I moved out in November of 2012, notified the two mortgage companies that I was letting it revert back to them under the terms of the bankruptcy. The foreclosure sale completed in September of 2013, I guess Colorado is kind of slow on that kind of thing. My question is, how long do I need to wait from the time of the foreclosure sale before I can consider purchasing a home? I would be looking at using my VA eligibility, none of this fancy 80/20 type stuff that got me into trouble last time. I have re-established my credit to the mid 700′s and am very responsible with my money, staying debt free and never being late on my car payment or rent or anything else. I appreciate any help you could give.

    Thank you!
    Cristy

    • Robert Weed

      Robert Weed

      February 4, 2014, pm28 3:49 PM
      20

      Cristy:

      For VA eligibility I think its two years after the actual foreclosure. But I’m not a lender so you should check around.

  • Felisha Poole

    February 4, 2014, pm28 3:46 PM
    21

    I filed Bankruptcy in 2012 when they started the foreclosure procedure on my house.The bank just foreclosed on my house and I have a move out date in April. 2014..Do I put this on my taxes for this year or next year for 2015?

    • Robert Weed

      Robert Weed

      February 4, 2014, pm28 3:47 PM
      22

      Felisha:

      Sorry, I’m not a tax guy. I have no idea.

  • Eric

    February 6, 2014, pm28 9:40 PM
    23

    Hi, My wife and I filed chapter 7 in Nov. 2013, we are currently waiting for our discharge. My wife has a mortgage in her name only. The property was included in the chapter 7, and we are aware we are going to be foreclosed on. My wife and i had a child born with special needs 2 years ago which forced her to leave her job, costing us about $50k a year, I tried to keep up with bills and mortgage payment but just couldn’t at the time, my wife had numerous credit cards and a 2nd mortgage. She had great credit before she lost her job, but with only my income i couldn’t keep up so we filed chapter 7. We are going to need to buy a new house, I have never had a mortgage loan in my name, i make $70k a year and all our debt is now gone, which will enable me to save quite a bit of money. My question is how long will i have to wait to secure a loan? I should be able to put $15k down and ill obviously start rebuilding my credit before hand. Also should i leave my wife off the loan application due to the foreclosure? Any advice is appreciated! Thank You

    • Robert Weed

      Robert Weed

      February 7, 2014, pm28 4:25 PM
      24

      Eric, I’m a lawyer not a lender, so I don’t know whether you should leave your wife off the loan application. My guess is there’s no benefit to including her, since she has no income, but that’s only a guess.

      You can get approved under currents regs two years after the discharge, but three years after the house in your name forecloses. Since the house is NOT in your name (or is it? You told me your wife was the only one on the mortgage, but are you both on the deed?)–I’m guessing the three year rule does not apply to you.

      Keep in mind I’m a lawyer, not a lender. This was what I warn my clients to expect, but that does not mean you MIGHT find somebody who can do better for you than what I say here. (Let me know if you do.)

  • Krystal

    February 11, 2014, am28 3:50 AM
    25

    Hi, my husband and I are currently RENTING a home that went into foreclosure and was sold to Freddie Mac in November 2013. We signed another one year lease in September 2013 with the same owner (since he owned it at the time). The attorneys office is saying that they will not honor our lease and want us out. Can they do that? I was under the impression they had to honor it.
    The BIGGER issue is our Chapter 7 bankruptcy was discharged in December 2012 and we have been turned down for two homes loans in a day. The credit is good, just not enough of it. There are no places to rent in the county we live in and my husbands job prohibits him from moving out of county. Is there anything else we can do? Would we be eligible for an FHA loan? The house on the bankruptcy was foreclosed in Oct 2010 and we filed for bankruptcy because he was medically discharged from the military. That being said our finances took a huge hit and we couldn’t pay our bills. Please tell me there is another option.
    Thank you for your time.

  • Sam

    February 17, 2014, am28 4:09 AM
    27

    Question I have related to article….
    I discharged chapter 7 in Sept 2009, Mortgage included.
    FINALLY got the deed for our house out if my name in 2012 thru short sale.
    The bank as no surprise showed 8 months of late payments and settled for less than owed, However only on Experian. All others showed closed due to chapter 7 in 2012.
    It is now 2014, I disputed the experian report and now all my credit reports show Loan closed 2012, that it was discharged in Bk, and NO late payments.
    My credit was in the 690′s prior to me winning the dispute. Hopefully has gone up being the late pays were removed.
    The question now nobody can answer me is shouldn’t my waiting period now be from 2009?
    I do not see how it is legal or ethical to make someone wait for almost 5 years when I have done nothing but better my situation. I rent have a car payment and a low credit card bill. That’s it.
    I feel like I am being punished twice.

    Can I buy now or not?

    • Robert Weed

      Robert Weed

      February 17, 2014, am28 11:01 AM
      28

      Sam:

      What the CREDIT report should show is Chapter 7 discharged Sept 2009. And the land records show a shortsale in 2012.

      My understanding is that you can’t get a loan until two years after the discharge–that was long ago–and two years after the shortsale. You are NOT quite there yet. (Depending on when the shortsale was in 2012–you didn’t say that.)

      But it’s sure OK with me if you apply–see what a LENDER tells you. This is lender policy, not bankruptcy law.

      • Sam

        February 17, 2014, pm28 1:57 PM
        29

        Thank you Robert. In my frustration of this topic I didn’t mention. It will be 2 years this August since short sale. One lender said absolutely not but didn’t sound sure, one us willing to run the process to see where we get but isn’t sure. The problem is nobody is willing to look into the guidelines for this situation. I have tried researching and there is no straight answers. Thank you for the insight. At worst I wait 7 more months in what has already been a frustrating process to get life and finances back in order.

        • Teri

          February 19, 2014, am28 2:22 AM
          30

          I am in the same situation. I was released in May 2010. The mortgage company didn’t transfer deed until July 2013. Over three years later. I’m being told I have to wait until after July 2016. It will be over 6 years. I feel that the mortgage companies shouldn’t be able to do that. I too feel like I’m being punished while everyone else who had to file has the option to purchase a home.
          Is there a time frame for the mortgage companies to do this? And who can I write to get this situation corrected. I’m ready to own my own home again.

          • Robert Weed

            Robert Weed

            February 19, 2014, am28 11:19 AM
            31

            Teri:

            All I know is to tell people, don’t move out. At least then you can live for free. I do not know of any way to force them to take it over. You can think about renting it so at least you are getting something.

          • Teri

            February 19, 2014, am28 11:45 AM
            32

            Well I stayed there for 2 years afterwards because I didn’t want the place to go to hell but I felt wrong staying and have been gone for two years now renting elsewhere. But isn’t there a time limit on how long they can do that? Seems like I’m being punished and having to wait 6 to 7 years when everyone else that files doesn’t have to.

  • Robert Weed

    Robert Weed

    February 19, 2014, am28 11:49 AM
    33

    Teri:

    I understand how you felt. But if the mortgage company doesn’t feel bad leaving it empty to go to hell, you shouldn’t feel bad living there not paying them.

    Is it still rentable?

    Don’t know if it makes you feel any better but lots of people are like you, frustrated waiting for the mortgage company to foreclose and not able to do anything about it.

  • Michelle

    February 25, 2014, pm28 8:43 PM
    34

    Hi Robert,
    My husband and I have been patiently(not really!) waiting to buy our first home. We have been turned down by numerous lenders because I have 3 old judgements equally about $10,000 total. My husband has none. Both of our scores are around the 620 range, which we worked hard over the last year to raise even to that point. I do have about $5000, all medical, on my report and all but 2 collections are 4 years or older. Both of us for the last 7 years have 100% on time payments shown on credit reports. My question is,,,should I file Chapter 7 and get rid of those medical collections and judgements? Will my husband be affected in any way? And, can we keep all the good credit we have now? (credit cards, 2 vehicles)
    Thank you for your time!
    Michelle

    • Robert Weed

      Robert Weed

      February 25, 2014, pm28 8:49 PM
      35

      Michelle:

      You definitely SHOULD have filed bankruptcy years ago when you got those old judgments–and now you’d be getting approved. But if you file bankruptcy now you will end up wasting the good credit you’ve built up. I do not KNOW what you should do now. I really don’t.

  • donna

    March 2, 2014, am31 12:57 AM
    36

    Was discharged, Chapter 7, this month, Feb2014. No home included.
    Am i able to purchase a small (even one acre) plot of land, only. NO home? I want to be able to set a *Tiny Home* on the land ~ Do all the above rules apply to me, as far as waiting if it IS just land that i am attempting to purchase? Thanks ~

    • Robert Weed

      Robert Weed

      March 2, 2014, am31 11:02 AM
      37

      Donna:

      Good question. It shows I’m not quite as clear as I should be.

      These rules are mortgage rules–under current regulations there’s a waiting period for how soon you can get a mortgage to buy a house.

      Are you paying cash for the land? Then sure, any time. Are you trying to borrow money to buy the land? Then I don’t know the answer. Around where I am, Virginia suburbs of DC, land is really expensive. So that question never comes up around here.

  • Mary

    March 12, 2014, pm31 11:20 PM
    38

    I have $45,000 in debt about $30,000 are student loans which I know can’t be included on bankruptcy I have a $8500 repossession and the rest are misc. bills that I was considering paying off. My question is is bankruptcy a good option for me due to the fact that I can’t afford to pay off my repo ? Or should I just attempt to pay off my debt? My goal is to purchase a home fairly soon and I know with bankruptcy I’ll have to wait 2 years. I just want to know the best way to handle my debt and be able to obtain a mortgage either way the repo/bankruptcy will hinder this process I just wanted to get a professional opinion on this matter thanks

    • Robert Weed

      Robert Weed

      March 13, 2014, am31 12:25 AM
      39

      Mary:

      You should talk with a lender, too. But I think there’s no way you can get approved for a mortgage with a repo sitting on your credit. Unless you can just pay it off, you need to file a bankruptcy if you want to buy a house any time soon.

  • KIM

    March 16, 2014, pm31 4:29 PM
    40

    WE ARE OUT OF CH 13 1-1/2 YEARS NOW WE ARE TRYING TO BUY A NEW HOUSE WE HAVE OUR OLD FOR LEASE WITH PAYING THE MORTGAGE ,OTHER BILL ON TIME OUR CREDIT CARD WAS PAYED OFF TO TRY AND BRING UP THE SCORE BUT IT IS STILL THE SAME THIS MONTH OUR SCORE IS AT 597 EQU, SO CAN YOU HELP US.

    • Robert Weed

      Robert Weed

      March 16, 2014, pm31 6:14 PM
      41

      Kim:

      No I can’t help you.

      • KIM

        March 19, 2014, am31 4:15 AM
        42

        why???????????????????

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