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No one ever thinks of bankruptcy as an ideal situation. However, for those who choose to reset their credit history in this way, it is generally a last resort that can literally save them from complete financial ruin. Still, there is a consequence to bankruptcy, in the form of a severely tarnished credit report, and this consequence can last for seven or more years. Does that mean you have to wait seven years to buy a home after bankruptcy? Not necessarily.
The Seven Year Rule
Bankruptcy stays on a credit report for at least seven years, and in some cases, up to ten years. That means that any time you apply for a new credit line after filing bankruptcy, creditors will see that you filed and can (and often will) use that information against you. Because of this fact, it used to be that bankruptcy was the kiss of death in terms of financing a home any time in the near future (namely, for about seven years), but things have changed. Creative financing options provided for by the federal government are giving potential home buyers the chance to purchase a home in spite of a recent bankruptcy.
Back to Work Program Offers Hope
The Federal Housing Administration (FHA) recently launched the “Back to Work” program to help those with bankruptcies (and in some cases, foreclosures, short-sales, and deed in-lieu settlements) in their credit histories purchase a home without waiting the full seven years. Ideally, homebuyers can purchase a property after a mere 12-month wait following a bankruptcy, given they can meet the program guidelines (detailed below). This means that families who have experienced some financial hardship in the past can move on faster if they are willing to put in some time and work.
Qualifying for the Back to Work Program
The FHA imposes some strict guidelines on those people looking to qualify for the Back to Work Program. These include documentation of a verifiable Economic Event (loss of job, sickness, injury, etc.) for at least a six month period leading up to the bankruptcy, a reestablished credit history (no late payments on credit accounts) for at least a 12 month period, completion of an FHA-sponsored Housing Counseling program (find qualified programs through the HUD.gov website), and the meeting of all other standard FHA loan qualification requirements.
If you feel you meet the Back to Work Program guidelines and are interested in applying for a mortgage loan through the FHA, then you can do so in a number of ways. Visit HUD.gov or call 1-800-569-4287 to find out more, or you may work with a reputable FHA loan brokerage or bank to help you complete a mortgage application and process the application for you. If you’re still not sure about your options, sites like lendingexpertblog.com can give you more information, or you can consider talking to a financial advisor!