How to Buy a House After Bankruptcy

ByNathan Paulus
Edited byRae Osborn

Updated: April 11, 2024

ByNathan Paulus
Edited byRae Osborn

Updated: April 11, 2024

Advertising & Editorial Disclosure

You can buy a house even following a bankruptcy — but not immediately. While a bankruptcy will affect the process and may make it more difficult to get approved by a mortgage lender, it doesn't block you from qualifying for a mortgage permanently.

You'll need to go through a waiting period post-bankruptcy, which ranges from one to four years depending on the mortgage and bankruptcy type. This is a pivotal time for financial recovery and credit improvement.

With effective financial planning and enough time to rebuild your credit, you can secure a mortgage. Over time, the adverse effects of bankruptcy diminish if you maintain good financial practices post-discharge. Knowing how different bankruptcies impact home buying will allow you to strategically plan for homeownership after bankruptcy.

Prepare for a Waiting Period

The road to homeownership after bankruptcy entails a waiting period ranging from one to four years based on your desired mortgage type and chapter of bankruptcy. This phase starts when your bankruptcy concludes, offering a chance to rebuild your financial base.

For Chapter 7 Bankruptcy filers, the waiting period ranges from two to four years depending on the mortgage type. Conventional loans require a four-year wait, while you may qualify for FHA and VA loans after only two years. Chapter 13 Bankruptcy filers benefit from potentially shorter waiting periods post-repayment completion, generally one to two years, highlighting the more lenient approach for those who have successfully adhered to a repayment plan.

The waiting periods extend for individuals with multiple bankruptcies, who are typically required to wait three to five years before applying for a mortgage to demonstrate a period of financial stability. Waiting periods ensure that applicants are well-prepared and positioned for success when seeking mortgage approval following a bankruptcy.

Here’s a table summarizing the waiting periods according to mortgage type and chapter of bankruptcy filed:

Mortgage Type
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy

4 years

2 years post-plan

2 years

1 year post-plan; contingent on court approval

2 years

1 year post-plan; contingent on court approval

3 years

1 year post-plan; contingent on court approval

The gap between when you end your bankruptcy and apply for a mortgage influences how lenders see you; a longer gap usually means less risk as you've had more time to rebuild your finances and credit.

wage icon

Consider the waiting period a proactive step, not a hindrance. Focus on these strategies to improve your financial standing and boost your chances of obtaining a mortgage:

  • Save Rigorously: Cultivate a strong savings account to cover future homeownership expenses and showcase financial prudence to lenders.
  • Budget Wisely: Adhere to a disciplined budget to ensure you're not overspending and are able to put money away for savings.
  • Improve Your Credit: Diligently correct any errors on your credit reports, maintain low credit utilization and pay all bills on time to work toward restoring your credit.

Rebuild Your Credit Post-Bankruptcy

Proving that you can reliably pay back debts after you've filed for bankruptcy is important as bankruptcy can drop a good credit score by up to 200 points.

During the waiting period, you'll need to work on rebuilding your credit to a point where you can qualify for a mortgage. The higher your score, the better your chances of getting approved and being offered favorable loan terms. Required credit scores for various loan types are as follows:

  • Conventional Loans: Minimum 620
  • FHA Loans: Minimum 580 for the 3.5% down payment option; 500-579 for a 10% down payment
  • VA Loans: No set minimum by the VA, but lenders typically require a minimum of 620
  • USDA Loans: Minimum 640 for automatic processing, lower scores may be considered with manual underwriting

This process of credit restoration requires a strategic plan, patience and focused efforts to navigate back to financial health. Start with these proactive steps:


Review Your Credit Report

Begin by securing a free copy of your credit report from major bureaus like Equifax, Experian and TransUnion. Examine it carefully for any inaccuracies or outdated information that might adversely affect your score, such as incorrect account statuses or outdated personal details.


Address Inaccuracies

If you find errors, dispute them immediately with the credit bureau. This process can involve submitting evidence to correct mistakes, such as payments wrongly reported as late or accounts that don’t belong to you.


Start Small

Start building your credit with secured credit cards or small installment loans as these financial products are designed to help individuals with limited or damaged credit begin rebuilding their credit history. Secured credit cards, for example, are backed by a cash deposit from the cardholder, which serves as collateral for the credit line, minimizing the risk to the lender and making approval more likely. Both options are effective for establishing a track record of responsible credit use, provided they report to the major credit bureaus.


Pay Bills on Time

Ensure timely payment of all your bills, utilities, rent and credit accounts. Set up auto-pay features or payment reminders to avoid missing due dates.


Keep Balances Low

High balances can negatively impact your credit score. Aim to keep your credit utilization ratio below 30% to demonstrate to lenders that you can manage credit responsibly without maxing out available credit.

Compare Mortgage Options After Bankruptcy

Once you've navigated the required waiting period and your credit score begins to meet lender requirements, you're in a position to consider any mortgage type. When choosing a mortgage post-bankruptcy, evaluate both initial qualification criteria and long-term impacts.

FHA and USDA loans offer lower down payments and flexible credit criteria but include extra costs like mortgage insurance. Conventional and VA loans, despite their tougher requirements, may lead to lower overall expenses for eligible borrowers. Your mortgage choice should match your financial situation, homeownership goals and the progress you've made in rebuilding your financial health post-bankruptcy.

Here’s a summary of the pros and cons of each mortgage type to help you make an informed decision:

Conventional Loans

Typically sought after for their favorable terms, conventional loans are not backed by a government entity but conform to guidelines set by Fannie Mae and Freddie Mac. They're ideal for borrowers with stronger credit histories.

  • Attractive interest rates for those with high credit scores
  • Absence of upfront mortgage insurance fees enhances affordability
  • Require higher credit scores, which might be challenging post-bankruptcy
  • Longer waiting periods — four years after Chapter 7 and two years following Chapter 13 — require patience and financial planning

FHA Loans

Backed by the Federal Housing Administration, FHA loans are designed to assist those with lower credit scores and smaller down payments.

  • Down payments as low as 3.5%
  • More flexible credit score requirements
  • Shorter waiting periods of two years for Chapter 7 and one year for Chapter 13, with court approval
  • Mandatory mortgage insurance premiums could inflate loan cost

VA Loans (for Veterans and Service Members)

Supported by the Department of Veterans Affairs, VA loans are exclusively for veterans, active-duty service members and some military spouses.

  • Benefits include no down payment and no PMI
  • Competitive interest rate
  • Restricted to eligible military-affiliated individuals
  • A VA funding fee is required, which can be waived under certain conditions

USDA Loans

The U.S. Department of Agriculture offers USDA loans for rural and suburban buyers, focusing on homes in designated areas.

  • Zero down payment required
  • Typically offers lower interest rates
  • Buyers must meet geographic and income criteria
  • A guarantee fee is needed, functioning similarly to mortgage insurance, adding to the loan's cost
homeMortgage icon

Institutions like Peoples Bank provide mortgage services specifically catering to those recovering from bankruptcy. These services often include personalized counseling, flexible underwriting standards and resources to help applicants navigate the mortgage process with a bankruptcy in their credit history.

Apply for a Mortgage

To adequately prepare for the mortgage application process, you should make sure to understand the steps involved and gather all required documentation to enhance your chances of approval. Below is a detailed guide to navigating this process:

Post-Bankruptcy Mortgage Application Process

Applying for a mortgage following a bankruptcy involves several steps:


Letter of Explanation

Before diving into the mortgage application, draft a Letter of Explanation. The letter should explain the context of your bankruptcy, show how you've worked towards financial stability and demonstrate your commitment to responsible financial management going forward.



Start with obtaining pre-approval from a lender, which gives you an estimate of how much you can borrow. This involves a preliminary review of your financial status and credit history.


Shopping for a Home

With pre-approval in hand, you can shop for a home within your budget. This step often involves working with a real estate agent to find a property that meets your needs and budget.


Formal Application

Once you've selected a home, you'll complete a formal mortgage application. This requires more detailed financial information and usually an application fee.



The lender reviews your application in depth, assessing your creditworthiness and the details of the property you intend to purchase.


Approval and Closing

If the underwriting process is successful, you'll receive final loan approval. The last step is the closing, where you'll sign the mortgage documents, pay closing costs and officially become the home's owner.

Documentation Checklist for Mortgage Applicants

Gather all necessary documents to make the process smoother. Here’s what you need to prepare:


Additional Resources

MoneyGeek has compiled a list of valuable sites and organizations offering guidance, tools and support to help you navigate the path to homeownership following a bankruptcy.

  • Official site to obtain free annual credit reports from the three major credit bureaus, crucial for monitoring your credit recovery.
  • Consumer Financial Protection Bureau (CFPB): Offers extensive information on mortgage options, financial literacy and consumer rights to make informed financial decisions.
  • National Foundation for Credit Counseling (NFCC): A nonprofit organization providing credit counseling services, debt management plans and financial education to help improve your financial situation.
  • U.S. Department of Housing and Urban Development (HUD): Provides resources on buying a home, including lists of HUD-approved housing counselors who can offer personalized advice and guidance.
  • MyFICO: Provides detailed explanations on FICO scores, the credit scoring system most commonly used by lenders, and offers tools for tracking and improving your credit score.
  • Housing Help: A portal for various housing-related resources, including buying a home, rental assistance and affordable legal aid, aimed at helping individuals find the support they need.
  • Making Home Affordable (MHA): An official government program providing valuable information and resources for homeowners facing financial difficulties, including those recovering from bankruptcy.

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.