Buying a Home After Bankruptcy

Sometimes no matter how hard you work and how careful you are in the financial aspect of your life you can still have issues and problems comecan you buy a house after filing for bankruptcy up.  The American dream can sometimes seem to be at an impossible distance in certain situations whether it was a divorce, job loss or the market tanked.  Bankruptcy is not fun for anyone but there is some light at the end of the tunnel.  There is a good probability that you will be able to pick up the pieces and recapture what has been lost so quickly.  Buying a house after filing bankruptcy is possible and sometimes can be a viable option much sooner than you think.

The biggest change happened when a new policy was approved from the Federal Housing Administration announced (August 15th 2013) that some could get approved with an FHA backed mortgage as soon as one year after the bankruptcy.  This is of course the best-case scenario but there are other possibilities to get approved for a mortgage in a timely manner.  Other things to keep in mind are the different situations as some may have just a bankruptcy and others could have had short sales or other foreclosures on their plate as well.

When you are interested in getting back to the world of homeownership it is important to understand a minimal timeframe of one year is required from the date of bankruptcy discharge OR if you had a short sale it would be from that closing date, same goes for a foreclosure. Other rules for this particular situation would be that your bankruptcy and the loss of your home has to fall under what FHA calls an “economic event”.  Some of these rules include loosing your income for at least six months, 20% job loss or a major pay reduction.  This may nix you out of this avenue but even without this loophole a traditional turnaround time to purchase a home could be as soon as 2 years.

After going through such a big financial ordeal like bankruptcy two years may be just enough time for you to get back on your feet.  At one point I have heard roomers that it can take up to seven years before you could qualify for a mortgage, but in more recent days it has taken some much less time.  The key things to keep in mind are as follows

  • Try and rebuild your credit or just have no credit (as opposed to bad credit). This would include making your payments on time, set up automatic payments and regulate your credit report.  This would be similar with no credit score except you will have to pay cash for everything and have no credit cards or credit lines of any kind.

  • Save up for a down payment. Believe it or not this really is being required for almost everyone, not just the people with a foreclosure on his or her record.  The idea is at least 20% should be saved for a down payment but when in doubt, the more you save the better chance you have of the lender qualifying you for the house.  Showing the lender that you are serious on doing right by the house note and have a good financial means to back it makes the chances much higher when being reviewed by the underwriter.

  • Eliminate debt and keep it away.  When going about these steps don’t acquire more debt, no additional car loans or other credit lines to your favorite clothing store.  None of this will look good when applying for a home loan.

  • Keep your income stable.  If you are one that jumps around from job to job it really can look negative on your mortgage application.  Ideally you will want to have a good stable income for around two years to show reliable income.

There are other items you may come across such as higher interest rates or even having to look at a less expensive home than you thought you could afford.  It would be wise to find a place that could be easily paid off with a 15-year mortgage this way hopefully you wont run into this situation again.  The moral of the story is that buying a home after bankruptcy is possible and in some instances sooner than you think and each situation is different, do your own research and don’t lose faith!

If you are ready to buy a home check out to research the neighborhoods and communities that you are interested in buying real estate. We provide everything you need to know to make an informed decision on buying your new home!


Home Buying Credit Myths: You Can’t Buy a Home Without Any Credit

As you go through the years from childhood to being young adult, and then an even older adult you hear the concerns buying a home without any creditfrom your parents, grandparents, friends and even colleagues that credit is extremely important.  Without credit you probably wouldn’t be able to buy expensive items and with bad credit you certainly wouldn’t be able to buy these items with reasonable interest rates.

Credit is a gauge of how you have made financial decisions throughout your entire life.  The almighty FICO score is what the credit mongers are concerned with, but is it fact or fiction?  Believe it or not the FICO score is a rating that involves an algorithm of how much debt you have been in and out of! Wait so the more debt the better, you ask?  Essentially there is a specific balance between the amount of credit you have, your payment history, loans amounts, credit card balances etc.

The highest credit score is 850 and the lowest is 300 and your credit score involves three major credit bureaus. The rating is their way of calculating the risk of loaning you money.  One problem most people are missing here is that if you have CASH and zero debt and don’t borrow money your credit score goes away!  The score does not go to ZERO it will just show up as not being calculated.

The home buying myths concerning credit are not necessarily true, depending on what you heard.  Just because the norm is to make sure you have a good credit score to pre-qualify for a loan doesn’t necessarily make this  amFACT.  It’s just like renting a home or apartment, if you didn’t have a credit score could you obtain the residence?  Well the answer is yes and that also goes for buying a home.

This does take a little more effort because it is not “normal” because normal is a percentage of DEBT to income ratio and in your case without the credit score and 20% down your ratio ends up being income to income ratio and not every mortgage company knows how to enter these numbers into the computer without the debt value…talk about a monkey wrench.

Here’s the situation and just to be clear a BAD credit score is different from NO credit score, the bad score will need to be cleaned up.  On the other hand no credit is not earth shattering but you will need to seek assistance from a mortgage company that will sit down with you and look at your physical income numbers and your history of payments (i.e. cell phone, water, power) along with what you are putting down.

Typically most are qualified for a mortgage that is far more expensive then what they actually need.  It goes with renting a house, many times large companies have the same issues with not have a credit score; this is a good opportunity to find a place that is being rented from a homeowner.  The funny thing is people with cash may even have the majority of the rent money ready to be paid for a year or six months but due to the lack of DEBT score the person is denied for not being “normal”.

Bottom line it IS possible to get a home without a FICO score but you will need to have 20% down just like everyone else and complete your due diligence in finding a good mortgage company that believes paying with cash rather then debt is a good thing and not a bad thing.  In the mean time save your money and do as much research as you can when looking for a house, I suggest using the tools at to assist in your investigation.