Bankruptcy can make many of life’s milestones challenging, especially significant financial decisions like buying a home. In Texas, understanding the timeline as well as the steps required can help prepare you for home ownership again.
Types of bankruptcy and waiting periods
There are two main types of bankruptcy that individuals typically file: Chapter 7 and Chapter 13. Each has different implications and waiting periods for obtaining a mortgage.
- Chapter 7 bankruptcy: This type involves liquidating one’s assets to pay off debts. The waiting period to apply for a mortgage after a Chapter 7 discharge depends on the loan type. It’s typically two years for FHA loans, three years for USDA loans, and four years for conventional loans.
- Chapter 13 bankruptcy: This type involves a repayment plan over three to five years. The waiting period after a Chapter 13 discharge is usually two years for FHA and USDA loans, and four years for conventional loans. However, if the Chapter 13 case is dismissed, the waiting period extends to four years for FHA loans and seven years for conventional loans.
Factors affecting the waiting period
Several factors can influence the time it takes to be eligible for a mortgage after bankruptcy. For one, it’s important to rebuild your credit score after bankruptcy, as lenders will want to see a pattern of responsible financial behavior.
You’ll also want to demonstrate stable and sufficient income. Lenders need to be confident in your ability to make regular mortgage payments.
Finally, saving for a substantial down payment can improve your chances of getting approved for a mortgage. A larger down payment reduces the lender’s risk and may lead to more favorable loan terms.
Bankruptcy is not the end of homeownership
While bankruptcy can be an unpleasant setback, it doesn’t mean you can’t become a homeowner. Each step you take towards financial stability brings you closer to buying a house and enjoying the benefits of home ownership again.