FHA and other government insured or guaranteed mortgage programs generally require a 2 year period of time to elapse from the date of DISCHARGE of the Bankruptcy until the APPLICATION DATE. Since many lenders require a credit score minimum—often 620—it is important to re-build credit during that two year period. That means you do NOT have any late payments [30 days or more beyond the due date], new collection accounts, or judgments. You should review your credit report soon after the discharge to make sure all creditors are properly reporting the debts that were discharged in the bankruptcy.
Building credit may take the form of vehicle loans, secured credit cards and savings account secured bank loans. All credit must be handled as agreed and it is advisable to have at least 4 tradelines reporting to the credit bureaus since the bankruptcy discharge. This shows the lender that you are now in a position to handle your obligations and that the reason for the bankruptcy were circumstances beyond your control. Runaway spending does not fall into this category.
Working with a mortgage professional now will pay dividends later, even if you are a couple of years away from being able to purchase.
Companies and programs dictate specific guidelines rearding eligibility for a mortgage after a bankruptcy. Generally, you would have to wait a minimum of 2 years from discharge of a chapter 7. If you filed a chapter 13, you can refinance out of the bankruptcy after the first year as long as you paid according to the plan. You can also refinance or purchase a home immediately after discharge of a chapter 13, with a proven, positive payment history (this is confirmed with the trustee).
In either case a major factor with becoming eligible for financing is re-establishing good credit. A Bankrupcty is meant to give someone a fresh start. Part of that is having positively reporting trade line and not having late payments or collection accounts after the bankruptcy was filed. Another important part is actually having open and reporting trade lines on credit. One common mistake made by consumers is paying off and closing accounts on credit. Credit is based partly on available credit. So, it may help to pay off or pay down accounts, but it may hurt your credit rating to close an account.
Next point is your housing history. A lot of weight is given to a good housing history. Since your interested in purchasing a home, lenders will verify your mortgage/rental history. Companies can and will disqualify you if you have any late payments. In the mortgage industry, you are considered late for any housing payment paid outside of the month the payment is due. So a May 1st payment paid on May 18th doesn’t make you late on your rent. According to your rental agreement, you may be late and have to pay a penalty, but you would not have made a late housing payment.
The last point I’d like to touch upon is even if you meet the above criteria, you would still need to meet the company minimum credit score requirement. My company has a minimum FICO requirement of 580. Credit score requirements also vary from lender to lender.
I hope you find this helpful. Good luck in your house hunt.
This is an update to my previous answer as there have been changes in the guidelines to promote short sales and discourage foreclosure.
The guidelines are now at 2 years instead of 4 as it had been for years.
Now a short sale is actually better on your credit then a foreclosure, they used to both be 4 years and now it is only 2 on a short sale and 7 for conventional financing. This gives homeowners the opportunity to get their back together and still be able to purchase only 24 months later. In some cases less, this is if you have a HAFA short sale and you are not late on your payments at closing, you can actually buy 1 day out of a short sale through a special FHA program!!
But the real question should be, how do I know it is a good time for me to buy again?
You should be re established in your life, if you can do it in 14 months or 14 years that is when you should be looking again, there are aggressive ways to get back in without a bank if you are determined AND READY.
If you are not ready you should keep renting until you have 6 months of the payment safely tucked away in case you run into trouble again and my suggestion would be to keep your housing AND monthly bills to no more then 30% of your income. Your gross income that is or if possible your net would be ideal but probably not realistic, this is not from lender guidelines just good common sense to keep you out of trouble again.