It can feel like the end of the world when your finances are in trouble, but the truth is, you’re not alone. Hundreds of thousands of Americans file for bankruptcy every year. While it can be devastating, it’s important to think of this as a fresh start. Although coming back from bankruptcy feels like an uphill battle, you shouldn’t get discouraged. You can recover and buy a home. Many people do. Here are general steps to take as you navigate the home-buying process after bankruptcy.

How Soon After Bankruptcy Can You Buy A House?

The waiting game is dependent on several different factors, including the type of bankruptcy on your record. Chapter 7 and Chapter 13 are the most common for individuals. Here’s what you should know about your options for either case.

Chapter 7

Liquidation bankruptcy is used to wipe away your debt, which will stay on your credit report for 10 years. Fortunately, this doesn’t mean you have to wait a decade to buy a home.

If you’re shopping for conventional mortgages that meet the demands of Fannie Mae and Freddie Mac, you will typically wait four years after the court dismissal or discharge. That said, the waiting period can be lowered to two years if you can prove that extenuating circumstances caused your bankruptcy (keep reading for details on what qualifies under this category).

For other loans, including the Federal Housing Administration (FHA) mortgage and VA (Department of Veterans Affairs) loan, borrowers must wait two years after filing for Chapter 7 bankruptcy. Again, the waiting period may be lowered to one year if you can prove that a situation beyond your control was to blame.

Chapter 13

Because Chapter 13 is more of a reorganization of debt, it’s generally considered less serious. Most cases involve a payment plan that allows you to pay back the debt over three to five years. This type of bankruptcy stays on your credit report for seven years, but again, you don’t have to wait that long to buy a house.

Much like Chapter 7, your waiting period for a conventional loan will be four years after dismissal if your bankruptcy was caused by mismanagement. It is two years if your case was discharged or there were extenuating circumstances.

For VA and FHA loans, the waiting period is one year. The U.S. Department of Housing and Urban Development (HUD) will also require written permission from the court.

What are extenuating circumstances?

As you may have noticed, many programs make exceptions for extenuating circumstances. What qualifies under this category? While every loan program is different, here are some examples:

• Extended unemployment due to job loss
• Injury, disability, or illness that affects your ability to work
• Divorce that leads to financial hardship
• Medical bills not covered by insurance
• A prolonged labor strike

If any of these situations apply to you, you’ll need to provide proof through documentation. This may be a layoff letter, legal divorce filings, or medical bills.

Applying For A Mortgage

Applying for a home loan after bankruptcy isn’t much different from how the process works for everyone else. The only thing that may vary is the need for more documentation to prove that you’ve repaired your financial situation. Here are the steps you will need to take.

Improve your credit

If your credit score is below the range of 580-620, you’ll need to work on improving that number.

First and foremost, pay all of your bills on time. Consider auto-pay features if you have a hard time remembering to make monthly payments. This is one of the easiest ways to raise your score.

Further, pay down debt if you have the cash on hand. Showing lenders that you have a low level of debt can be incredibly helpful when it comes time to apply for a mortgage.

Are you still struggling to improve your score? Consider using credit repair tools that pull all of your monthly bills together to boost your score. Many of these options are free, online, and easy to use.

Prepare a letter of explanation

Although your credit report is important, it doesn’t tell your entire story. A letter of explanation can assist in disclosing the circumstances that prompted your bankruptcy. Prepare a letter that clearly explains when you filed for bankruptcy, what type of bankruptcy it was and your reason for filing. This is also your opportunity to explain how your situation is different now than it was back then. For example, a new job with more stability or a higher salary.

Get pre-approved for a loan

Pre-approval is an essential final step before you search for a home. It will help you establish a budget, giving you and your real estate agent important guidance on which homes you can afford.

To get this pre-approval, you’ll need to supply several pieces of information, including, but not limited to:

• W-2s or 1099 forms from the last two years
• Recent pay stubs
• Your Social Security card
• Tax returns
• Bank statements
• Bankruptcy documents

How To Bounce Back

Once you’re approved, it’s time to take a deeper look at what you can actually afford.

Sit down and calculate all of your streams of revenue, along with your monthly expenses. This will help you determine the monthly mortgage payment you are most comfortable with. Consider this as you browse for homes, and remember, there are many ways to cut costs. Buying and selling homes costs money, but doing a little research can pay off. For example, a real estate agent operating on a flat fee basis may help you save thousands of dollars.

You can thrive in life after bankruptcy by making the right choices every day. Build your savings account and live within your means. This will allow you to pay your bills on time and help you bounce back from financial hardship.