How to Buy a Home if You have Filed for Bankruptcy

7 Tips for Buying a Home after Bankruptcy

Filing bankruptcy, either Chapter 7 or Chapter 13, is financially dreadful but by no means

financially deadly. It is very much possible to buy a home after filing bankruptcy if you prepare

and plan carefully. Here are 7 tips to help you do so…

1. Get Your Bankruptcy Discharged

To start the process of getting a mortgage and buying a home after bankruptcy, you must first

ensure your bankruptcy is discharged. Remember to save a copy of your bankruptcy discharge

notice as most mortgage lenders will request a copy of it.

2. Get a Credit Report

After receiving your discharge notice, get a free credit report and review it carefully for

mistakes. If a change or update is needed, contact the credit agency from which you got the

report and have it corrected. (You can usually dispute it online via the company you used to pull

your report.) You can get one free credit report per year from many different services including

Equifax, Experian or TransUnion.

3. Know the Required Waiting Period Before You Can Apply for a Mortgage

Depending on the type of mortgage you want and the version of bankruptcy you filed, the

waiting period varies.

With a Chapter 7 bankruptcy, the waiting time is typically four years for a conventional loan and

two years for a FHA or VA loan. If you choose to get a mortgage via FHA, the time period can be

one year if you qualify for their “Back to Work” program.

If you filed Chapter 13, a conventional loan may be attainable after two years. If you choose to

get a mortgage via a FHA or VA loan, and if you have 12 consecutive months of on-time

payments, as well as permission from the court to get a mortgage, you may be able to purchase

a house within one year.

4. Set Yourself up For Financial Success During Your Waiting Period

During your required waiting period, try to do as many of these credit rebuilding tactics as possible:

Use only a small portion of your credit
Don’t max out any credit cards
Slowly apply for more credit
Do not apply for too much credit in a short period of time
Build up your credit slowly with on-time or even early payments. When possible, pay back more than the monthly minimum.
Have a good debt-to- income ratio. Mortgage lenders like to see your total reoccurring debt to be around 30% or less of your total income. For example, if you make $4000 per month, lenders prefer candidates that have no more than approximately $1200 in monthly debt.
Hold the same job for a substantial period of time
Have savings, and preferably a substantial down payment in the bank
Have a 401(k) and/or retirement plan
Pay all of your bills on time, or preferably early, and do not have any bounced checks

5. Understand What You Can Afford

Most mortgage lenders do not want people to have more than 30% of their monthly income go

towards a house payment. As an example, if you make $5000 per month, your mortgage

payment should not be more than $1500. Remember property taxes, insurance and mortgage

insurance (if you did not put down a 20% down payment) are all included within your

mortgage.

6. Do Your Mortgage Homework

Like all big investments, you need to do your homework and talk to multiple companies to

determine the lender to get a mortgage. In the vetting process, ensure you clearly understand

all fees and processes up front before deciding on a lender. Any good lender will take the time

to ensure you understand their process and fee structure in order to earn your business.

7. Beware of Scams

Any lender that tells you that your income and credit do not matter – are not reputable

lenders and as such, are not people you should entrust your home and financial future. Never

do business with anyone who charges excessive fees and closing costs. Most closing costs

should not exceed 5% of the total cost of the home.

Ready to find your perfect home?