Power Tips

How Buying a House After Bankruptcy Works

Published on: December 21, 2021

Buying a house after bankruptcy is possible if you’ve filed a Chapter 7 or Chapter 13 bankruptcy. However, lenders may impose a waiting period after your bankruptcy is discharged before you can take out a mortgage. Plus, lenders that deal with bankruptcies may look more closely at your financials, such as your credit report and bankruptcy discharge details, to ensure you can qualify.  

Although putting your financial life together may take some work, with the right steps and a bit of time, you can get a home loan after bankruptcy.

How buying a house after bankruptcy works

Yes, it is possible to buy a house after bankruptcy. In fact, there are many real estate agents and mortgage brokers who can refer you to a bankruptcy attorney to help you determine the best course of action if you’re trying to get a home loan after bankruptcy. Factors that will determine whether you’ll be able to qualify for a loan include your credit profile and choice of lender.

While bankruptcy isn’t a permanent negative mark on your credit, the difficult part is showing lenders you’re someone who will pay back their loans on time. In other words, you’ll need to prove to lenders you’ve taken steps to improve your credit score and have enough assets that you’re not seen as a risky borrower. For instance, even if you file Chapter 7 discharge papers, lenders still want to see that your financial situation has recovered before qualifying you for a mortgage.

The different types of bankruptcy may also affect your chances of qualifying for a home loan. The two types — Chapter 7 and Chapter 13 — will affect your credit differently in addition to how existing creditors will treat your debts.

Chapter 7 bankruptcy is where the court will eliminate your debts by selling your nonexempt assets to pay back your unsecured loans and forgiving what remains. For any secured loans you have — such as a car loan — your lender will take back their collateral. You may be able to keep certain assets that are considered exempt.

This type of bankruptcy can only be approved if you pass what the courts call a means test, which means you need to show that you don’t have enough income or assets to reasonably make loan payments and meet your basic needs. While eliminating your debts can feel like a fresh start, your credit will be very negatively affected. What this means is it could take longer for you to build up your credit in order to be approved for a loan.

Chapter 13 bankruptcy is different from Chapter 7 in that you can keep your assets and have the ability to negotiate with creditors to prolong or modify payment plans. That way, you will be able to prevent situations such as a car repossession, potentially lower your debt payments, and be debt-free by the time your Chapter 13 plan is over.

Those who go through with a Chapter 13 bankruptcy may not see their credit go down as drastically as those who successfully filed for Chapter 7. You may also be able to take out home loans while under bankruptcy, though you’ll need to get approval from the courts before doing so. However, many lenders still impose a waiting period before you can apply for a mortgage. 

How long after bankruptcy can I buy a house?


Loan Type  Waiting Period (Chapter 7)  Waiting Period (Chapter 13) 
FHA   1 to 2 years  1 year and pending court approval if still under Chapter 13 plan or 2 years after discharge 
Conventional  4 years  2 years (after discharge) or 4 years (after dismissal)
USDA  3 years  1 year and pending court approval if still under Chapter 13 plan or 1 year after plan is complete 
VA  2 years  1 year 


Waiting periods differ between loan types and different chapters of bankruptcies typically due to the qualifying requirements. For instance, the FHA waiting period after Chapter 13 is more lenient compared to a conventional loan because FHA credit requirements in general are not as strict. Plus, lenders that offer government-backed loans, such as VA loans, are protected in case a borrower can’t repay their mortgage. This incentive may encourage these lenders to approve loans more willingly.  

Conventional loans have further requirements, in addition to longer waiting periods, if you’ve filed Chapter 13 bankruptcy multiple times. For instance, if you’ve filed for bankruptcy more than once within the last seven years, the waiting period will be five years from your most recent dismissal or discharge date.  

That being said, you may be able to shorten the waiting period for some types of loans if you can prove you were subject to extenuating circumstances. For instance you may be able to qualify for an FHA loan after one year if you can prove your bankruptcy was due to extenuating circumstances, such as a serious illness, and you can prove you’re able to manage your finances responsibly. 

Conventional loans also allow borrowers to shorten the waiting period after filing a Chapter 7 bankruptcy to 24 months from the date of discharge or dismissal if they can prove extenuating circumstances. If you’re unsure what counts, it’s best to contact a lender who has worked with those who filed for bankruptcy for assistance.

How to improve your chances of getting approved for a mortgage after bankruptcy

When it comes to increasing your chances of getting approved for a mortgage after bankruptcy, the key is to ensure you raise your credit profile as much as you can. That way, lenders will be able to see you’re serious about taking out a large loan and are responsible enough to make on-time payments.  

Since a bankruptcy will lower your credit score, the goal is to raise it so that you can meet at least the minimum credit requirements. Government-backed loans tend to have less stringent credit requirements, so consider going that route if you can meet their other qualifications, such as living in a qualifying area for USDA loans.  

No matter which type of mortgage you decide to take out, you can begin to increase your chances of getting approved for a mortgage.

  • Re-establish credit accounts: If your old accounts have been erased from your credit report, you’ll want to open a new account so that lenders report new activity to the credit bureaus. Keep in mind that it’s best to do this responsibly — consider opening one account to start. A credit card is a simple choice, and it’s possible to get a secured credit card even with a bad credit score. All you need to do is to put down a deposit, which serves as a line of credit. 
  • Make on-time payments on credit and loan accounts: Your payment history is one of the largest factors credit bureaus use to evaluate your credit score. Making on-time payments is a simple way to raise your credit score. If you’re worried about remembering to pay your bills, consider signing up for auto-pay. 
  • Get a cosigner: A cosigner is someone who will legally agree to take on a mortgage if you, the borrower, can’t make the payments. This guarantee will help lower the lender’s risk, making it more likely that you’ll qualify for a loan. Ideally, your cosigner will have excellent credit, helping you to qualify for the most competitive rates.  
  • Lower your debt-to-income (DTI) ratio: Your DTI measures your monthly debt payments to your gross income. The lower the DTI, the less risky you are to borrowers since you won’t seem like you’re stretched too thin financially. You can lower your DTI by paying down your debts or by increasing your income.  

Since a bankruptcy on your credit is a major red flag for lenders, you may be able to increase your chances of getting qualified by explaining your situation in a letter. This letter can outline more details about your bankruptcy, including why you had to declare it. Some details you may want to include: the situation leading up to your bankruptcy (such as any extenuating circumstances), steps you’ve taken to change your financial situation, and any relevant information regarding how you’re working toward preventing a future bankruptcy.  

You can submit your letter of explanation along with your mortgage application when getting preapproved.

Bankruptcy home loan FAQs

Can you buy a home after Chapter 7 bankruptcy with a cosigner? 

Yes, you can buy a house after a Chapter 7 bankruptcy with a cosigner. Doing so can increase your chances of being viewed more favorably when you first start going through the preapproval process. Before going this route, make sure you have a cosigner you trust and that you have a conversation with this person about what you’ll do to ensure you’re being responsible with your new mortgage 

How much does bankruptcy hurt your credit? 

Filing for bankruptcy can severely hurt your credit score. A Chapter 13 bankruptcy will affect your credit score for seven years from the date you filed, and a Chapter 7 bankruptcy will affect your credit for 10 years.  

Should I keep paying my mortgage if I’m filing for bankruptcy? 

Yes. Until you reach an agreement or payment plan with the courts, you are legally obligated to keep making your mortgage payments as per usual.  

If you’re ready to discuss your home loan options, contact local Finance of America Mortgage Advisor today to learn more.

How Much House Can You Afford?


Why Finance of America Mortgage?

We’re not about pushing loan papers. We’re about moving your dream forward. And we do that through knowledgeable local advisors, a personal approach, and a variety of smart loan options.

Learn More About Why Finance of America Mortgage?


Consumer Loans Funded Since 2015


Local Advisor Branches