Buying a Home After Bankruptcy - Quicken Loans Zing Blog*This post was published in 2005. Bankruptcy guidelines have changed greatly since then. For more information, check out the government’s website here

The good news: Having a bankruptcy on your credit report does not mean you can’t buy a home. Believe it or not, those who have gone through bankruptcy are actually encouraged to find ways to build credit by taking on debt.

The bad news is that debt will be closely scrutinized, come in smaller amounts, and have higher interest rates because lenders will consider them to be higher-risk borrowers. But these downsides shouldn’t discourage those with poor credit history from investigating their home loan options. The responsible use of credit is the only way up from a bankruptcy filing.

How Bankruptcy Affects Your Credit Rating

Bankruptcy can provide relief to people in dire financial straits by releasing them from the obligation to repay their debts. It’s a drastic move for anyone because a bankruptcy will stay on a person’s credit rating for up to 10 years, effectively acting like a warning flag to anyone considering lending that person money or a line of credit.

In order to mitigate the risk of providing that person a loan, the lender will charge higher interest rates than they normally would. For instance, an auto loan that might ordinarily carry six percent interest could come with an interest rate of eight percent or higher. But, as time passes and small loans and credit card balances are paid off on time, the bankruptcy filing becomes less and less significant to a lender.

Rebuilding Good Credit After Bankruptcy

Establishing good credit after bankruptcy is essential. The following will help recent bankruptcy filers regain their financial strength:

  • Pay bills on time. This is the single best thing bankruptcy filers can do to build up their credit rating.
  • Acquire and use a secured or unsecured credit card. Just don’t charge any more than you can afford to pay off each month.
  • Read your credit report. Errors are possible, and keeping tabs on your progress will help you stay focused on the goal of rebuilding after bankruptcy.

When and How to Find a Home Loan

Understandably, mortgage companies want some form of reassurance that the borrower is on a safe and responsible financial track. Many lenders prefer to see three things when considering loaning money to someone following a bankruptcy:

  • A two-year stretch of on-time bill payments
  • A down payment
  • A steady income

The one non-negotiable item on the list is a reliable income. The other two – two spotless years of credit and a down payment – aren’t quite set in stone. Some lenders will be willing to provide a loan sooner than two years if there is evidence of responsible bill payment on a car or secured credit card plus reliable income.

Likewise, with a steady work history and a down payment (even a small one), it’s not impossible for someone just coming out of bankruptcy to secure 100-percent coverage on a home loan.

Finding a reputable lender willing to loan a home’s total value to someone just beginning the process of rebuilding their credit, and with an on-again off-again employment situation, is a tall order, and probably not a good idea for the would-be borrower. Post-bankruptcy borrowing should be undertaken at a slow pace and with an eye toward the future. With proof of responsible borrowing and spending, home ownership won’t be far off.

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This Post Has 296 Comments

  1. I filed bankruptcy may of 2011.my discharge date was august 2015. my credit score is around 700.when will i be able to purchase a home again and are there programs to help me with the down payment

    1. Hey Bernice:

      The timing on when you can get a mortgage depends on the type of bankruptcy that was filed. There are also low down payment programs and you may have some options. I’m going to get this to a Home Loan Expert who can look into your situation and give you more detail.

      Thanks,
      Kevin Graham

  2. I have been working on my credit now for several years. My creit score is a 742, trans union, I just got served a filing for a judgement for a medical bill that I owed from a car accident for 134,000, I had no choice but to file for chapter 7, my credit cards and car payments have shown 6 years of perfect pay. Would I qualify for a home loan under certain circumstances once I am discharged, or do I need to wait the 2 years.

    1. Hi Debra:

      Sorry to hear about the car accident. The bill really stinks but at least you have your health.

      As far as applying for a home loan, in most cases you’ll have to wait two years. I’m going to have someone reach out to you to go over details and discuss when you might be able to apply.

      Thanks,
      Kevin Graham

  3. Hi, We filed a chapter 7 over two years ago and included our somersaulting house mortgage in it. We stayed with the house since we were told that although weren’t making payments anymore we were liable until the bank took possession of the house. So the mortgage company has finally started the process of foreclosure. We were told that if we were careful with our finances, we would be eligible to buy another house in two years or so…but someone else later told us that we couldn’t buy anything until the house had gone through the foreclosure and then had to wait YEARS after this. Please tell us if we can start the process of getting approved for a loan or if we have to wait on the foreclosure of a house we discharged in our bankruptcy over two years ago.

    1. Holly:

      It depends on the type of loan you’re getting what the waiting period is. I’m going to pass your question along to one of our Home Loan Experts who can look into your situation further and go over your options.

      Thanks,
      Kevin Graham

  4. Hi,

    My bankruptcy will be discharged 3 years from when I will be home shopping again. Chapter 7 bankruptcy and the mortgage was included, however I stayed in the house and was current on my payments and ended up selling the house and paying off the loan. I know none of that will be listed on my credit report because the loan was discharged but do I get any special consideration for not defaulting on my FHA loan? I was interested in getting a FHA insured construction loan and all I could find is information on people who defaulted on the loan via bankruptcy.

    1. Hi Shawn,

      Since your bankruptcy will be discharged for three years under Chapter 7, you may have some options when you’re ready to buy. I’m going to have a Home Loan Expert reach out to you to talk more about your situation.

      Thanks,
      Kevin Graham

  5. I filed for Chapter 7 bankruptcy that was discharged in March 2012. Among the items discharged was my residence- I did not reaffirm. I am currently in the house and have been set up on a loan modification. However, due the the mishandling of my Mortgage and/or note, the amount the Mortgage company shows I am in arrears is grossly miscalculated. I have tried for over 3 years now to get it straightened out, but after dealing now with the 4th bank (yes the keep selling it), I have decided I would rather walk away than to fight anymore. How can I get my name off of the title (which is what every lender I’ve spoken with states must happen before I begin my ‘waiting period’) without harming my credit further?

  6. I filed Ch 7 bankruptcy that was discharged in March of 2012. The house was not reaffirmed, yet I still live here and the bank is finally allowing me to do a loan modification (although the original note doesn’t exist anymore?). However, I have been struggling and fighting with 4 different banks over the past 4 years (keeps getting sold) and I am to my limit with the incorrectly additional charges, etc. I just want to “walk away” as so many have advised. But I learned recently that if my name is still on the title, I have to being my waiting period to obtain a loan based on the date I in which I am no longer on the title (however I get that to happen without major repercussions). So, I’ve waited 4 years from bankruptcy for no reason and I have to start the wait over again?

    1. Good morning, Jacqueline. We need a little more information to give you some advice, so I’m going to have a home loan expert reach out to you with an email. They’ll see what they can do to help. Have a nice day!

  7. I see that you are always posting that it usually takes 2 years after filing chapter 7 to get a mortgage approved. Apparently, there are a few exceptions. Could you please explain what these exceptions are?

    1. Good morning, Karen. There are a few loan programs out there that will allow you financing prior to your bankruptcy being 2 years old. Often times these programs require a higher interest rate, a large down payment and a higher credit score. For many of these programs, you would also need your bankruptcy to be more than 12 months old. Since the qualifications are so specific, I recommend that you speak with a Mortgage Banker to get more specific information. If you would like to speak with one of Quicken Loans’ Mortgage Bankers, you can do so by calling 800-251-9080 or by going to http://www.quickenloans.com/about/contact and selecting “Click to Chat!”

  8. Hi. My husband is currently going through a bankruptcy for old medical bills and unfortunately bills his parents put in his name as a youth. This was the only option or file a police report /fraud against his parents. .. he got the sucky end, but can we still qualify for a loan with his bankruptcy. No homes are on it. Email jenngreen0202@gmail.com

    1. Good morning, Jennifer. I’m sorry to hear about the struggles you and your husband have gone through. In most cases, you need to wait at least two years after bankruptcy before getting a mortgage. You’re basically building your credit from scratch, meaning it’s going to take some time. First of all, I recommend that you read this article on rebuilding credit. It will be a good place for you and your husband to start. I’ll also have one of our home loan experts reach out to you through email.

      Best of luck to you and your husband!

  9. Hello I filed chapter7 bankruptcy 2014 and was discharged in July 2014 and I have been late on some bills,,,,I have one more yr to pay everything on time and raise my credit score….is it possible to still get a loan next year in august

    1. Thanks for your question, Monique. To better answer your question, I’m going to have a home loan expert reach out to you through email. They’ll get some more details from you and will help answer your questions. Have a great week!

  10. My husband and I had to file Chapter 13 during 2012 as a result of the recession. He is in the construction industry and was out of work for 2 and1/2 years. We did not include our home in the Chapter 13 process. We are struggling to make our mortgage payments and would like to sell our current home and downsize to a smaller residence hopefully to decrease our current mortgage payments to half. Is it possible to find a lender who will be willing to lend us a mortgage loan so that we can decrease our monthly debt. I will be paying off most of my medical bills within the week after taking monies from my 401K and catching up the only credit card we have that we are a couple of payments behind on. We have made our Chapter 13 payments on time since the onset of the bankruptcy. Our credit score was fair, but I just check it yesterday and now it is showing poor. Don’t quite understand how credit reports work. If someone could give me some guidance, I would greatly appreciate it. Thanks

    1. Thanks for your question, Eva. To better answer your question, I’m going to have a home loan expert reach out to you through email. They’ll get some more details from you and will help answer your questions. Have a great week!

  11. I filed a chapter 7 bankruptcy not through my 2yr yet but have been paying on my car and my credit card on time any way to get approved for a loan early

    1. Thanks for your comment, Matthew. Our home loan experts are taking a look at it now, and they’ll connect with you shortly.

  12. I went through a chapter 7 bankruptcy I have paid on my car credit cards on time for a good long time but not through my 2yr any way to get approved for a loan

  13. Ch 13 discharged 10/14. Would like to refinance mortgage as I have a 10.5 interest rate. Credit score is around 710.

    1. Hi Dee! You need to be discharged for two years in order to apply for a mortgage. So October of 2016 you should be good to apply.

  14. My husband and I were discharged Nov.2011. We continues paying for our home.(no late payments)We recently put a contract on a home in s.c. (we are in va)After showing discharge papers and all. we were told, today that we should have foreclosed, because it will show us walking away from a debt??? this was discharged and we even had our attorney send a letter to the lenders stating that. I guess it doesn’t pay to continue paying something once it was discharged.

  15. May 29, 2015

    My wife and I had to file chapter 13, which was roled over into chapter 7 after paying back over 90 percent of our debt. The company I was working for closed its doors. We had owed taxes to the Feds. which we where trying to pay along with our first and second morgage. We payed our two morgages and our car payments regardless of charpter 7. We may have been 2 weeks behind in our payments up until Sept . of 2014 but we payed every month. We still didnt have the income to get ahead to pay on time. We finally sold our home, payed off the two morgages and the money to the Feds. We have payed all our other bills which consist of truck payment, my wife has been paying on her car payment even though it was in chapter 7 for three years , always ahead of time . We have been out of chapter 7 for two years and three months. We purchased a lot, put in a foundation, and a well. We have over 100000.00 invested in this land. We have money in the bank for a good down payment, but we are unable to get anyone to help us with a construction loan. May I also add that between my wife and myself we have very little bills and a good income. Please help
    George and Jackie

    1. Hi George! Unfortunately we do not offer construction loans. Let us know if you have any other questions.

  16. Filed for chpt. 7, 5 years ago. Since then we have several cards and 5 years of excellent credit on our reports. Additionally we have 20 acres of ground with a metal pole building on it worth approx $20,000, an outdated doublewide which we paid cash for and own. Additionally we own 4 vehicles all paid off and our property has septic and well water systems. We are at the point where we want a foundation and a prefab home built on our land. Can someone contact use to discuss lender options and a game plan? Thank You.

  17. Bankruptcy discharged 10/14. Retired military income, VA disability income, and job income. Have one car loan, one bank loan, VA home loan eligibility reinstated in Nov 2016 according to the VA. Any chance I can get a home loan now with money down and then refinance after VA loan is reinstated?

  18. My husband and I had our bankruptcy discharged Jan. 2014. We are looking for a manufactured home loan in Oregon and we have a decent amount of downpayment. Is is possible to get a loan so soon? Most lenders seem to require being out of BK 2 years.
    Thanks!

    1. Hi Michelle! If you filed Chapter 13 you must be discharged for 2 years, if you filed for Chapter 7 or are self employed and filed Chapter 11, you must be discharged for 4 years.

  19. I was a gunship pilot in Vietnam and was associated with Agent Orange application. I was a commercial pilot and then found I was poisoned by it and could no longer fly or obtain employment. I am now 100% permanent and totally disabled VA rated. We had to file chapter 7 about a year ago due to this and have been building our credit back ever since. I have quite a large income now with Military Retirement (non taxed), Social Security and VA disability payments. We have been in contact with the VA about home loan guarantee and they stated that if I can find someone to loan they will go with it. Can tell you much more but would rather talk to a person rather than write it down.

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