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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 have similar situation. My husband was layed off a lot, we used credit cards to get by for about 2 years, and eventually couldn’t afford the payments anymore. We filed chapt 7 on our credit cards and medical bills. We didn’t file on our house or my car. As soon as we filed in May 2010, my husband got a full time position with the ANG. He’s had steady pay since then. Our BK was discharged in Aug 2010. We still own the home which has been paid every month and always more than the minimum payment. We also purchased another vehicle in March this year and have always paid it well before the due date and more than the minimum. Since my husband job was 2 hours away we relocated and have rented the property we own. Just recently we have deciced to move back since my husbands work schedule would allow it but we don’t want to just rent and throw away our money. I would like to discuss our situation in more detail with a loan adviser to see what our options are for purchasing another home.

  2. I had a bankruptcy discharged may 2010. I kept my house and truck and recently purchased another vehicle. I sm curious ss to my eligibilty for a home loan as I have been offered a new job in another state

    1. Hi Brad

      We’ll have a banker get in touch with you to review your financial situation and let you know where you stand. Thanks for the question.

      Clayton

  3. I had to file Chapter 7 Bankruptcy after retirment, a divorce where my ex took off and left me with every bill imaginable. I lost my house to foreclosure but tried to put it in the bankruptcy. The bankruptcy was done and discherged in early 2010. I have re-established my credit, which took a major hit, to the 700’s now. My wife and I are wanting to try and get a loan for a modular home. I have a good bit in savings I can put down abot 30 thousand. Will I be able to get financing or will the lendor just laugh and send me away? Please reply to me

    1. HI Mike,

      Unfortunately, in most cases we have to wait 2 years after a bankruptcy is discharged before we can consider someone for home financing. If the home was included in the bankruptcy, we generally have to wait 3 years. Please keep us in mind in the future and good luck! Thanks for reading.

  4. I am a Veteran and had to file Bankruptcy and it was discharge in Nov 2009. We have gone through the process and have re established good credit. We are in a contract to build a home and the lender called yesterday 2 months after signing contract and stated that our house that we included in our BK was not taken back by the bank until Aug 2010. Now our contract is all but null in void. Does anyone know how it works with BK and taking of a house back so long after discharge date. If it holds up as it sounds to me we can not purchase the home until Aug 2012. I applied for a VA loan and did not us it on the home included in BK. Thanks.

    1. Hi James,

      If your house/mortgage was included in the bankruptcy we have to wait 3 years after it has been discharged before we can consider you for home financing. If your home/mortgage was not included in the bankruptcy, there may be something we can do. Can you let us know the exact situation? You can email your phone number to content@quickenloans.com if you’d like and we can discuss your situation with a Home Loan Expert. Thanks!

  5. I have filed chapter 7 and got discharged March of 2009. I’ve been renting and would like to buy a house again. I am now on disabilty with a fixed income of $3400/mos net income. I wanted to see if I can get prequalified so that I know what to do and where to begin in obtaining a home.

  6. We started a Ch 13 over 2 years ago. I lost my job and then husband lost his job, we converted to a Ch 7 and are due to be discharged on August 7, 2011. I carried a car through the Bk and also a small credit card for re-establishment purposes. I just had our credit reports run and I am at a 629 and my husband is in the 580. We have found a manufactured home that fits our needs that they are only asking $28,500.00. I know the home would appraise for much more than that. Is there anyway to get a manufactured home loan right after our bankruptcy discharges. My husband has found another job and is making good money there and has been in the same line of work for 20 years. Just looking for a lender to give us a 5-10 year loan on this amount of money. Please let me know if there is a lender out there willing to work with us. Our credit was perfect before we both lost our jobs. Thanks.

    1. Hi Kathy,

      Thanks for reading! Unfortunately we have to wait at least 2 years after the bankruptcy is discharged before we can consider someone for a new mortgage with us. Best of luck to you and keep us in mind in the future!

  7. Hi my family and I filed for a chapter 7 bankruptcy and now we are clean and have been for sometime and want to apply for a mortgage but we need the right lender after bankruptcy can you help me?

  8. My fiancé and I are in the market for our first home. She is currently getting her student loans back on track, and I have just finished a bankruptcy due to over spending and lack of dependable income. We both have held reliable jobs for more then 2 years, and have 1 secured credit card that is current and in good standing. Is there anyone who can help us get the loan we need for a starter first home?

  9. Hello, we filed bankrupcy last november, we were discharched in january 2011. We have been renting for about a year and half. We r at a small townhome , we have staedy income coming in ,we have not been late with our monthly payments, are there any loans that we can qualified for ?

    1. Hi Gabriel,

      In most cases we have to wait at least 2 years after a bankruptcy was discharged before we can approve you for financing. Please continue to keep us in mind and thanks for reading!

  10. My wife and I filed chapter 7 and it was discharged the beginning of December 2010. There were no assets included in the bankruptcy as we had none and were renters. We have been renting since january of 2005 and would like to purchase our first home. We have some in mind in our area that even the most undesirable rate would still put a monthly payment below what we have for rent. I have been with my current employer for 6 years and my wife has recently joined the same employer. Combined income is greater then 45k a year. We currently now have a daughter. I understand bankruptcy tends to have to take 2 years but I am curious if it is possible to be sooner as in some cases. neither of us have had a vehicle payment and we both own our vehicles outright. Both vehicles run perfect. We have pre-approvals for vehicle loans but figured its not needed as we have well maintained vehicles already that don’t have a need to be replaced. As for the down payment I know we would be able to come up with anywhere between 5k-15k for the down payment. The chapter 7 was comprised mainly of unpaid tuition (never did the drop out process before the deadline) and medical bills from before we were married. Current medical bills are paid for in full with our FSA/HSA. Covers the deductible and everything is 100% covered through the insurance after that. If there is something that can be worked on that would be fantastic. If we can apply jointly without a co-signer that would be great … but if we need a co-signer I do know one who is willing, I am not sure if that matters with bankruptcy or not. The total amount of the discharge was around 50k with 20k+ being from the unpaid tuition.

    1. Hi Christopher,

      In most cases we have to wait at least 2 years after a chapter 7 bankruptcy has been discharged before we can approve you for financing. It’s unfortunate because it sounds like you are doing everything right with your current financial situation. Continue to do what you’re doing and please keep us in mind. Thanks for reading!

  11. I was woundering how long does it take to purchase a home after filing chapter 7 bankruptcy. What is you credit score after filing? Do you have a credit score after filing?

    1. Hi Tia,

      In most circumstances, home buyers have to wait 2 years after the bankruptcy has been discharged. How your credit score is impacted is unique to your specific situation, so a Home Loan Expert will be in touch with you to discuss. Thanks for reading!

  12. I filed for bankruptcy and was discharged in Jan 2010. My house was not included and have always paid on time. I was approved for an auto loan in April 2010 and have been paying those payments on time as well. The home loan officer I spoke to told me that my credit looked good but I still have to wait 2 yrs. from discharge to get a home loan. I recently started a great new job in a new city. I’ve gone ahead of my family to start the job and look for housing. There are many great options to buy and not so many for rent in the new city. My plan is to have some place before mid-June so my family can join me when the kids get out of school. So, before I go crazy trying to chase a rental, I would very much like to know if I could get a loan now or what benefit would it be for me to wait one more year?

    1. Hi Jennifer,

      In most cases we would have to wait at least 2 years after a bankruptcy has been discharged to consider home financing. There are some exceptions to the rule, so you may want to talk to one of our Home Loan Experts. Feel free to give us a call at 800-251-9080 or I can put you in touch with someone if you’d like. Just let me know and thanks for reading!

  13. My husband and I bought our dream home in April2007. My husband was laid off in Oct 2009 and since then he has not been able to get a steady job. I have a small business,but I am in the process of filing bk. I am asking, how long after my bk will I be able to buy a more affordable home. We are not going to be able to keep this one anymore.

    1. Hi Kelly,

      In most cases we have to wait 2 years after the bankruptcy is discharged in order to consider you for home financing. Good luck and if you have any further questions let us know! Thanks for reading!

  14. Hi my husband and I started falling on hard times when my baby was born in 2009 and I had to stop working and the company my husband worked for went out of business. We had two houses and had a hard time paying for both. To make shorter we sold oe of the houses and was already behind on the other and just could not catch up. I tried many loan motifications to get a comfortable payment to fit our financial situayion and was denied everytime. Anyway we ended up filing joint bankruptcy in june 2010 and discharged in dec. 2010. We have been renting for 10 months now with great payment history. We also just paid off an auto loan in march. Other than that we have no utilities in our name except car insurence, cell phones and satalite tv. My husband has been at his job for 7 months now and we have a good bit saved. Is there any help in getting a loan for no more than $40,000?

    1. Hi Amelia,

      I’m sorry to hear about your hardships. It sounds like you’re on the right track, but unfortunately if your home was included in your bankruptcy, we would need to wait a minimum of 3 years before we can consider you for financing because the home would be treated as a foreclosure. If you have any additional questions, give us a call! Good luck, Amelia!

  15. I discharged a chapter 7 Aug 2009. My home was included, but we still tried to modify. But the bank does not want to modify because the second borrower is not cooperating. Can I qualify for a home loan? I have steading income and I have 2 credit cards and purchased a new veh. last year in May.

  16. company i worked for for over 30 years went bankrupt and closed in feb. 2009.. so i was unemployeed.. friend of the court took 50% of my unemployment check for child support.( which is now over).. i had little choice but to file bankruptcy.lost everything. have now found a good job again.been here a year..have a year of all on time payments for apartment rent,cable tv, and electric,,(my only bills.)..

    im wondering about the chances of getting a loan to buy a condo.. price $ 40,000.
    with a down payment of $ 12,000…mortgage of $ 28,000 for 10-15 years,

  17. I am researching to see if it is possible to get a home loan after filing bankruptcy (Chapter 7). It will be discharged March 14, 2011. What is the process?

    Thanks

  18. Filed Bankruptcy in Aug 09 in California.

    I was approved for a loan from Quicken Loans to buy a house back in 04/05.
    At that time, I was trying to save my home after divorce and after being notified of Payments on my ex’s side, not being met.
    I was not on the house loan or 2nd or 3ed mortgage but I was paying the 1st mortgage and on time of 1295.00/mo. The 2nd and 3rd foreclosed and I dropped the process for completing the loan.
    I am renting now at more then I would have been paying for the home loan we had arranged.
    I have one student loan down to 9K and pay extra on that every month and soon to be one non secured credit card for building credit purposes only.
    I make 32K/yr 1700/mo for the rest of my life, the rest child support for 2+ more years.
    Our divorce dragged on since 04 and was stalled when my ex filed bankruptcy to finally be continued this month to try to gain back half of the property assets the ex took out before he filed, including the 401K and possible personal injury to me for not paying court ordered health insurance. (I have MS)

    It will be exactly two years in Aug and I am looking to be pre-qualified for a home loan in another state where property is much cheaper.

    My only payments are general utilities, and the one student loan.
    The rest of my money is free and clear.

    I am looking to be prequalified on a 15yr fixed and would like to know what to expect in advance.
    I know very little about home loans other then the experience I had with Quicken Loans and would like to be prepared now and ready to get a loan by Aug of 11.

    Any information you can give me to help me get a loan only 2 years out other then the information online (which helped a lot) would be appreciated.

    Thanks

  19. I have a question. I filed for bankruptcy chapter 7 in August of 2010. It was discharged in November of 2010. I purchased a car in December 2010. How long do I have to wait before I am eligible for a mortgage? Outside of my car, the only unsecured debt that I have is my student loans.

  20. My situation is similar to these folks as well– My husband and I were discharged in March 2010. In the BK we also lost our house. We have been renting for 1 year and 7 months with no missed payments and kept 2 vehicles during the BK that we never paid late, as well as a student loan that was never late. All of our unsecured credit was discharged, and since then we haven’t obtained any other forms of credit. So what we do have is in great standings, but it isn’t much and I don’t know what our current credit scores are. Since this whole ordeal my husband and I had our first child and are really interested in finding a place we can call home again- that doesn’t share a wall with someone! I have been in my current job nearly 7 years, and my husband has been in his for job for almost 9 years with a joint income of nearly 80K. We live in FL and it is definitely a buyers market we simply need someone to give us the opportunity of Financing! Can you all help?

  21. I owned an engineering business for 8 years in Atlanta. Unfortunately the economy drove me out of business – and found ourselves “given the keys” back to the bank for our dream home – ending up going through a bankruptcy.

    We have been paying rent – on-time – for 24 months and have a great steady income job… Like Mr. Cook above we are also making our landlord’s pockets FAT – how can we restart our lives if no one gives us loan?

    I look forward to hearing from someone soon – thank you!

  22. We had a chapter 13 that was converted to chapter 7 and discharged in June,2010. Under the chapter 13 our car payments were paid monthly and on time. Our mortgage payments were paid directly to the lender byus outside of the bankruptcy, on time and never missed. The only other loans we have are private student loans that were put on hold during the bankruptcy and immediately after put on collections. We have made arrangements for repayment on them and never missed or been late. Since then our income has changed and with the housing market the way it is we can no longer afford our home and may have to resort to quick sale or deed in leu. We have found a property that is much smaller and less expensive. It is valued at 190,000 and listed at 168,000. We have a documented fixed income and could afford to lease the property, but would much rather find a way of financing and putting the money toward ownership and begin a fresh start. We have no credit cards. Is there anything quickenloans would be able to do for us?

  23. I have a bankruptcy discharged 6/3/10. The bankruptcy was due to a business failure. But we have missed no house payments, car payments, or AmEx payments. Only debts associated with my failed business were discharged. We have steady (and good) income and have a history of steady payments on bills. Is it possible for us to re-finance our house? We currently have an interest only loan at 8.5%. We need to refinance. Is that possible with Quicken Loans?

    1. Mark, with an 8.5% rate, you DEFINITELY should look into locking into current low rates. Refinancing could save you thousands in interest. Whether or not we can help with your refinance depends on several factors, like your current credit score, your current home equity situation, and your income sources. I would not let the bankruptcy keep you from speaking to a home loan expert right away. I’m passing your email on to one of our knowledgeable home loan experts. He can answer any questions and help guide you to the right decision.

  24. Can a family apply for a home loan while going into third year of a chapter 13 and have home now.Used to have excellent credit, but got stuck trying to take care of two homes when one woudnt sell.Credit score is still not bad.

  25. My wife & I are just weeks outta our 1st ever & only ever chapter 7! We will never do this again! It has been a nightmare! I broke my back & lost job, 7 my wife was forced to 2 stay @ home & take car of me for approx 12 months. We piled up most of our debt in the form of medical bills from my 2008 accident, however everything else snowballed as we ate through our savings when I lost my income. We have only 1 positive tradeline on each of our CRB’s, which is our student loans which survived the BK, & were @ good status even before we filed BK! We have no debt now, and 34k a yr income. We have approx. 2k-5k for downpayment, and 24 mo. of clean ontime(neverlate) rental payment history! We are tired of pissing away all our hard earned money in this amazing “buyers” market! We have found many properties to fit our needs, just need the financing! We dont care what type of initial mortgage terms we get as long as it gets us into the home we want at the payment we can afford, with the option to refinance after a yr or 2 to lock in better rates! We have pissed out over 24k on this rental making our landlords pocket fatter, and we cant take it anymore! if you can help us , with our provable income, & our provable amazing rental payment history over the last 24 months, please contact us asap, before we get stuck in another rental trap. Our lease is up currently and we need to purchase or rent again & its not going to be here due to the high crime rate from the crappy economy! We must make a move/decision very soon though! We would like to be In a new home no later than first week of Feb 2011! Please feel free to contact me @ [phone number removed] ONLY if you are positive you can help!

    1. Hi MR COOK,

      I’ve passed your information on to one of our Home Loan Experts who will be in contact with you if we can help. Thanks!

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