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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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This Post Has 316 Comments

  1. My wife and I filed chapter 7 bankruptcy that was discharged in Oct 2011. We both have credit scores above 620 and two credit cards a piece with minimum balances as well as a car payment which was reaffirmed with about a $1200 balance remaining. We have about 5% to put down on a home up to $150,000. Our combined income is approximately $105,000 per year which would give us a very good front and back end DTI ratio. Our challenges would be the BKO of course being a year old and our time on the jobs which would be a year for me and two months for my wife. I’m curious to know if you would have a fixed rate mortgage that we could possible qualify for. I welcome any advice or information you can provide.

    Best regards

    Eric and Stacy Scruggs

    1. Hi Stacy, one of our home loan experts sent you an email and it came back as undeliverable. Is there another email or phone number where we can contact you to see if we can be of assistance? Thanks! Victoria

  2. HI,

    We filed chapter 7 and it was finalized in February. We currently have 15 year loan with only 11 years left but the payment is too high. I would like to refinance and Wellsfargo wont modify my loan unless my wife leaves me, Im in the hospital or cant work.. I make a good income and I want to lower my payment. Is there anything you can do to help without paying an outrageous interest rate?

    1. Hi Kevin

      A Home Loan Expert will be contacting you to discuss your options. Thanks for the comment and good luck with your home financing.

      Clayton

  3. Hello,

    If one is in a Chapter 13, 3 years into the repayment plan, pays it off after 37 months… do those 3 years since filing count? Or would he have to wait 2 years after the discharge to qualify?

    Thanks,
    RMB

  4. my 13 is discharged and i have no late payments, business decision. my kids will gift to me a house worth 300 k, but it needs work about 100k. can i get a mortgage as i do not have on now and have no bills, make about 28,000 per year.

    1. HI Bill, I have forwarded your request to one of our home loan experts who will contact you to learn more about your situation, thanks!

  5. My chapter 7 was discharged in Jan of this year. I have since then bought a car, had a secured loan, and a secured credit card that I have had perfect payments on for at least 6 months. I make great money and would love to get my 1st home and get out of renting. Is there any way I can qualify for a home loan???

    1. Hi Wes, thanks for reaching out to us. I’ve shared your inquiry with one of our home loan experts who will contact you soon. Thanks and have a great day!

  6. Hello, I filed for bankruptcy in 2010 and was discharged in Feb 2011 so the “2-yr” recommended wait period for me will be this Feb. My new wife and I would like to try to buy a home around May, June or July. We are current on all monthly payments. As for a down payment, she owns her current home and would like to use the proceeds from the sale to use as the down payment. She has received info from a local lender that tells us it is basically hopeless, but I do not agree. Can you guys provide some advice?

    1. Hi Sean, I will have one of our home loan experts contact you to find out more about your situation and offer some tips! thanks and have a great day!

  7. I completed chapter 13 payment plan in May of 2012. I now have no debt except for a studen loan. I’ve been at the same company for 12 years and earn an above average yearly salary. Is it possible for me to get a home loan? (I’m also a fist time home-buyer)

    1. Hi Kevin, thanks for reaching out to Quicken Loans. I’ve shared your inquiry with one of our home loan experts who will contact you soon. Thanks and have a great day!

  8. My Chapter 7 Bankruptcy was dismissed 1-1/2 years ago and I own my home free and clear. Since a line of credit is impossible to get now a days, can I just get a mortgage against my equity in the home? I have no liens or mortgages against my home, so I would be getting, in essence, a new mortgage.

    1. Hi Fabian, I shared your inquiry with one of our home loan experts who will contact you soon, thanks and have a great day!

  9. My name is Brigitte and my husband and I filed for chapter 7 Banruptcy. It was discharged on 09/30/2011. We both have secured jobs and have secured credit cards with on time payments. we do not have a downpayment. We would like to buy a house/ townhouse/condo. what are our chances and what lenders will approve a loan.

    1. Hi Brigitte, thanks for contacting us, I have forwarded your inquiry to one of our home loan experts who will contact you.

  10. We filled bankruptcy in April of 2011. We were going through a remodification process at this time and the company that was handling our remodification recently informed us that they will no longer
    handle our remodification. The foreclosure process has not occurred yet. We have not make a house payment for a while due to the remodification process. Our mortgage lender has given us information on their modification procedure and they informed us that it most likely will not occur due to our income(its to high.) we have no auto or credit card payments but my credit score is 650. I was recently turned down for a home mortgage loan due to our bankruptcy. We have around 5000 in savings and that is climbing up each month. I was doing research and found a sub prime mortgage. Would you please give me more information on this and would we benefit going this route? We are at this time looking to purchase a home in the near future. Thank you for your time and I am looking forward to your response.

    1. Hi Renee,
      Thanks for reaching out to Quicken Loans. I have forwarded your inquiry to one of our home loan experts who will contact you soon to find out more about your situation. Thanks and have a great day.

  11. Hello there, our bankruptcy was discharged in November of 2011. My spouse and myself both work and have a good income. We have 2 vehicles which one was paid off on Feb.2011 and the other will be paid off by the end of this year. We would love a buy a home in the $100,000 and below range and would like to know if we can quailfy for a home loan. Thanks

    1. Hi Mimi, thanks for reaching out to us, I have forwarded your request to one of our home loan experts who will contact you soon. Thanks.

  12. Sorry my comment posted twice, my computer was giving me issues. Thank you, Victoria, for your quick response. We look forward to speaking with someone.

  13. My husband and I filed chapter 7 which was discharged 15 months ago. We would like to talk with someone to see if we would be able to qualify for a new mortgage to purchase a home. We are currently renting. Thank you.

    1. Hi Nicole, thanks for reaching out to us, I have shared your inquiry with one of our home loan experts who will contact you to soon to learn more about your situation and see if we can help. Have a great evening.

  14. My bankruptcy was final about 3 months ago. The house I have been living in for the last three years on short sale, and I would like to purchase it. I have been at my current employment for 13 years and make a good wage. Is there any way I might qualify to purchase this home?

    1. Hi Jackie, I have forwarded your inquiry to one of our home loan experts who will contact you. Thank you for reaching out to Quicken Loans and have a great day.

  15. I really believe that a foreclosed can have a major effect on the debtor’s life. Property foreclosures can have a Seven to a decade negative effects on a client’s credit report. Any borrower who has applied for home financing or any loans as an example, knows that your worse credit rating is actually, the more complicated it is for any decent bank loan. In addition, it can affect any borrower’s ability to find a really good place to lease or hire, if that turns into the alternative real estate solution. Thanks for your blog post.

  16. My husband and I are looking to purchase a home. We filed bancruptcy over a year ago and it was discharged one year ago today. Our credit scores are in the mid 6’s and rising. We just recently traded in our vehicle after one year to lease a new vehicle. We have no bad marks on our credit since our discharge. We make good money together and have steady income. Please let me know what we need to do to obtain a home loan or if it is even possible.

    Thank You

    1. Hi Barbara, thanks for reaching out to Quicken Loans, I have forwarded your inquiry to one of our home loan experts who will contact you to find out more about your specific situation and see if we can be of assistance. Thanks!

  17. My wife and I filed bankrupcy due to our insurance company not paying for a surgery that she had. We own a home but have recently moved and want to buy a new home where we live. I have a buyer for my old house but have told them that they can’t officially buy it until we buy a new house because the mortgage being paid on time is a good mark on my credit score. I have a pretty good income and am looking to buy a house around january or february when my rental lease is up. I am just wondering what programs are available, what type of down payment that I will need, and what other contitions need to be met to get approved for a home loan a little more than a year after bankrupcy discharge. Also in february I will have been with my current employer for a year and I don’t think that should be an issue for steady income because I took this job and almost doubled my previos income. Thank you!!

  18. It been acouple months since discharged i have land for home, steady income. how do i get loan to buy home.first time home buyer.

    1. Hi Meeka,

      To clarify, are you looking for a construction loan? Quicken Loans does not offer construction loans. We can only offer home loans on an existing home or refinance you out of your construction loan and into a conventional loan once the home is complete and you have a certificate of occupancy.

  19. My Chapter 7 is two years old. I don’t have spotless bill paying, but I do have a down payment and steady income (same place for almost 5 years). What are my chances of getting approved?

    1. Hi Alicia, thanks for reaching out to Quicken Loans, I’ve forwarded your inquiry to one of our home loan experts who will contact you and see if we can help!

  20. My Chapter 7 Bankruptcy was dismissed 1-1/2 years ago and I own my home free and clear; however, I would like to have a line a credit on the home for improvements. It is possible to obtain a line of credit with so much equity in the home?

    1. Hi Fabian, thanks for reaching out to Quicken Loans. Unfortunately, at this time, we do not offer home equity lines of credit. However, our offerings change regularly, so that may change in the future, but for now, we do not offer them.

  21. My bankruptcy was discharged in July of 2010. I have a credit score of 663. I currently have been on my new job for only 3 months. My wife has been on hers for almost 2 years now, but her score is around 550. Do I have any chance of securing a home loan?

    1. Hi, Tenny. Thanks for reaching out to Quicken Loans. I’ve passed your question on to one of our Home Loan Experts, who will be in touch with you soon.
      Thanks again and have a great day!

  22. Chapter 7 bankruptcy discharged 3 months ago, current credit scores range from 632-650…looking to purchase a home. Time is of the essence as I currently have an opportunity to buy the house I have been renting for the past 3 years before it is put on the market.

    1. Thanks for your question. I’ve passed it on to one of our Home Loan Experts who will be contacting you soon.

      Thanks again and have a great day.

  23. i filled bankrupcty march 2010 chapter 7 due to divorce . i wish to buy a home in georgia price is 57,000 dollars i inquired to bank in georgia and applied VA told had to wait until October 2012 to re-apply because of VA rules. is there any way i can get help on financing before then?

    1. Hi, Alvin. Thanks for reaching out to Quicken Loans. I’ve passed your question on to one of our Home Loan Experts, and you’ll be contacted shortly.
      Have a great day!

  24. Hi,
    I filed chapter 7 in April 2010 due to a divorce and my job forcing me to move out of state. The bankruptcy was discharged in September 2010. I have been employed with the same company for 17 years and make very good money. I have several unsecured credit cards and a credit score of around 620. I have enough money saved for a 6% down payment + closing costs. When will I be eligible for a home loan?

    Thank you,
    Steven

    1. Hi Steven

      One of our mortgage bankers will get in touch with you shortly to find out how we can help you. thanks for contacting us!

      Clayton

  25. My fiancé and I are interested in purchasing a home asap. I have a bankruptcy discharged 6-1-10 and my two year wait will be up in a few weeks. I have kept excellent credit since and my fiancé has always had great credit. Can you help us?

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