Many debtors who file bankruptcy will end up losing their home, if they are homeowners, either because they have too much equity to qualify for exemptions or because they have fallen behind on their bills and the bank forecloses on them. After bankruptcy, many former homeowners are able to get their finances back in order and want to buy a home. The good new is that for many people, buying a house after bankruptcy is possible. It takes some strategic planning and some understanding of the way bankruptcy affects your credit score to make this happen.
Bankruptcy is going to play a factor in your ability to get a mortgage. It will be present on your credit report for up to 10 years. This means that your lender will see the bankruptcy when reviewing your application for a mortgage, unless you wait a full 10 years before trying to buy a home. But this does not mean you cannot take steps to improve your credit in spite of that, nor does it mean your application will be automatically denied.
The key is to find a bank that is willing to take the risk on a borrower with a bankruptcy. This can be quite challenging, particularly in light of current economic situations, but not impossible.
The other key is showing that you have learned from your mistakes. If your lender can see a positive credit history from the point of your bankruptcy until now, you might have a better chance. If you can save a substantial amount of money to put down on the property as a down payment, you will increase your chances. Aim to have at least the 20 percent required to avoid PMI, if you can.
Why is a large down payment so important? No matter what you do to improve your credit after bankruptcy, you will likely still be viewed as a higher risk simply because you have filed bankruptcy. If you put a lot of money down on the home, that gives the bank some cushion if you should default. The mortgage is secured by the home, and the mortgage is now much less than what the home is worth due to your down payment. If you default, the bank will get its money back most likely.
Of course, to someone fresh out of a bankruptcy, coming up with a 20 percent down payment can seem impossible. The good news is that you have a clean slate after filing bankruptcy. You no longer have the pressure of all of that debt over your head. If you can get on a budget, find ways to make extra money, and start saving, you might be able to save that 20 percent in much less time than you think. It all depends on how disciplined you can be with your money. With enough time and discipline and the right lender, it is absolutely possible to buy a home after bankruptcy. You just need to be patient!
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