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.

Have any questions? Talk to a Home Loan Expert today!

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  1. I am lost because I though my home was still consider mine after my Ch7 bankrutcy. After talking to the mortgage co (WellsFargo) they are apart of my 2016 discharge. I am not obligate to make payment but they can retrieve the property. Quicken was ready to do a refin in 2018. I have invested alot of my income to remodel room 4room. Please help me?

    1. Hi Joyce:

      I’m going to recommend you reach out to one of our Home Loan Experts about this at 888-980-6716. They may be able to give you more advice. You should also consult a bankruptcy attorney and go from there.

  2. I have been discard from bankruptcy for over 12 months, can I qualify for a mortgage loan? The bankruptcy was a chapter 7 in the state of GA.

  3. Our Ch7 discharged in late August 2015. Our scores are back into the high 600’s and low 700’s depending on who you ask. All on-time payments with new auto loan and unsecured high-limit cards. We also have 20% down. We would like to move out of state before the new school year begins, which is likely just shy of the 24 month minimum. At what point can we BEGIN the mortgage loan process with Quicken to ensure that we are able to move prior to or exactly at the 24 month mark?

    1. Hi Jim:

      Unfortunately, FHA requires that you not apply until two years after the discharge. However, we may have an option to help you after a year. I’m going to recommend you talk to a home loan expert by filling out this form or calling 888-728-4702.

  4. I filed a Ch. 13 BK and my wife has filed for a Ch.7 bankruptcy. We currently have a house that we have been living in for almost two years now. We would like to move to another state. How hard would it be get a loan for another house? (we would be selling the house we currently live in now) Keep in mind both BK have been recently filed.

    Answers would be greatly appreciated. thanks

    1. Hi Kevin:

      Unfortunately, the soonest we could help you with any kind of loan would be one year after the discharge of the bankruptcy. You would have an FHA option after one year, but your wife would have to wait two years. I wish I could give you a different answer.

      Kevin Graham

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