There's good news and bad news regarding getting financing after bankruptcy. The good news is you can get financing after a judge discharges or dismisses your bankruptcy. The bad news is you'll probably need to wait some time and save some money. With that said, here are five ways to get financing.
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1. Conventional loan
If you filed Chapter 7, the most common type for individuals since debts are wiped out, and want a conventional loan, you will need to wait at least four years after a judge either discharges or dismisses your bankruptcy. If you filed Chapter 13, also called a reorganization bankruptcy, since you'll still pay your debts over time, you will need to wait four years after a discharge and two years after a dismissal.
2. USDA loan
If you filed Chapter 7 and want a United States Department of Agriculture (USDA) loan, you will need to wait at least three years. For Chapter 13, it's one year.
3. FHA loan
If you filed Chapter 7 and want a Federal Housing Administration (FHA) loan, you will need to wait at least two years. For Chapter 13, it's as soon as you get a dismissal or discharge.
4. VA loan
If you filed Chapter 7 and want a U.S. Department of Veterans Affairs (VA) loan, you will need to wait at least two years. For Chapter 13, it's as soon as you get a dismissal or discharge.
5. Hard money loan
Hard money lenders are typically private investors or companies that lend money based on the property, not a borrower's credit. Therefore, you should be able to get a hard money loan even after a bankruptcy. This depends on the lender, however, and how much risk they're willing to take.
With hard money lenders, the property is weighted more heavily than your credit score. However, a bankruptcy will likely affect the lending decision even with hard money lenders. These types of lenders usually prefer to wait until after your bankruptcy has been discharged.
A Chapter 7 bankruptcy generally takes about four to six months to discharge, while Chapter 13 usually takes between six and eight weeks after making your final payment (which could take several years).
The consideration with getting a hard money loan soon after bankruptcy is that they are typically short-term or bridge loans that usually come with high interest rates and origination fees. Most borrowers use these loans for flips since the goal is a quick exit strategy to pay off the loan.
Start saving
No matter which financing method you choose for your next real estate deal after bankruptcy, while you're waiting for the time to pass, you can start saving via a savings account, certificate of deposit (CD), or money market fund. When you've saved enough for a down payment, you'll have an easier time getting financing.
Consider investing in REITs
There are other real estate investing options besides direct ownership. Real estate investment trusts (REITs) are companies that own and typically operate income-producing real estate. These could be apartment buildings, offices, retail centers, hotels, hospitals, warehouses, and collections of single-family homes. You can buy shares through a brokerage account.
Just because you have a bankruptcy doesn't mean you can't invest in real estate. You can. You've wiped your slate clean and can now start over.
