Unfortunately, there are times when bankruptcy cannot be avoided. Although a devastating time, remind yourself that if you want to buy a home, it is not the end of the world. Although you will be faced with a few unique challenges, buying a home after filing bankruptcy is possible. In fact, some lenders will work closely with you through a number of special programs that will get you into your new home while also helping you rebuild damaged credit.
Up until a few years ago, filing for and being given a bankruptcy was relatively easy. However, we have now seen a new set of rules associated with bankruptcy that has made the process much more difficult. These new rules mean your debt is analyzed much closer and if you were approved for a home, you would pay higher interest rates.
However, just because you have had the misfortune of filing for bankruptcy, do not be discouraged.
For people who have had no other option for getting out of debt, bankruptcy provides relief and a fresh start. Depending on the type of bankruptcy being filed, you would be completely cleared of debt or put on a scheduled repayment program whereby some or all of your debt is paid back over a period of time. Once bankruptcy has been completed, it will show on the credit report up to 10 years. For some people, this serves as a red flag that perhaps you are a bad credit risk while for other people, it means you are debt-free and therefore, a good risk.
To have the chance to buy a home after bankruptcy, one of the most important things you can do is start rebuilding your credit history. Obviously, this will not happen overnight but with persistency, it will happen. To accomplish this, you should always pay your bills on time, do not buy anything you cannot afford, do not acquire new debt, and follow up with your credit report every six months to ensure everything being reported is accurate.
After you have filed bankruptcy, any mortgage lender is going to want some type of reassurance that if they loan you money, you can afford it and will make the payments. For this reason, most mortgage lenders prefer to see two years of paying your bills on time, a decent down payment, usually between 10% and 20%, and steady employment with adequate income. In fact, the most important thing a lender will look for when you apply for a home loan after bankruptcy is that you have a good-paying job. During the first one to two years after receiving your bankruptcy, take the time to start setting yourself up for success when it comes time to buy a home.