How long after a Chapter 7, do I have to wait to purchase a home?

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How long after a Chapter 7, do I have to wait to purchase a home?

I’m going to buy a house between me and my brother after bankruptcy. How long after a bankruptcy do I have to wait to purchase the home, so it doesn’t go back on the bankruptcy. The house I’m buying is $10,000 with a $20,000 value. I plan to buy with the next tax refund check I get.

Asked on July 24, 2011 Illinois

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

First off I will assume by "after a Chapter 7"" you mean after discharge not after filing.

In theory you can buy a home immediately after your discharge; however if the trustee gets wind of it you may have to show where your downpayment came from. If it is from your own funds you could be in trouble since you weren't supposed to have any savings that were not reported and accounted for when you filed for your Chapter 7. If you can validly account for where the down payment came from (e.g. tax refund - your case; or a gift, etc) then you can beome a homeowner immediately. That is if you can get the financing.

Qualifying might not be that easy, especially in these hard times. Underwriting requirments have become extremely strict. That's not to say that you can't get financing, just that it won't be easy. You should probably plan on 1 or 2 years. The fact is that since a large proportion of home loans depend on FHA or VA loan guarantees, your ability to qualify for those guarantees may determine when you are able to obtain a home loan. For instance, the FHA will insure mortgages to individuals who have filed a Chapter 7 2 years after the discharge if “the borrower has re-established good credit and has demonstrated an ability to manage financial affairs”. Additionally, keep in mind that FHA is not a bank; it’s a government agency that insures loans from FHA approved lenders. So while the FHA has its rules, a bank will also have its own rules as well. And many banks today are only willing to lend to a borrower that has achieved mid-to-high range credit scores. Finally, don't forget that a downpayment now is typically 20% of the sales price.


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