Owning a Home after Filing for Bankruptcy

In today's current housing market, even people with decent credit history are having a tough time qualifying for a home loan. You are probably saying to yourself, "Great, what chance do I have with a bankruptcy on my credit?" Well, it definitely will not be easy and don't let anyone tell you any differently. However, there are still options and owning a home can still be a part of your future after bankruptcy.

Get Over a Bankruptcy with Patience and Time

During the housing craze, sub-prime lenders would advertise loans available for people one day out of bankruptcy. As you have probably guessed, those days are long gone. To own a home now, you must have a pretty good credit score as well as reliable and sufficient income. With a bankruptcy, not only must you re-establish a solid credit score, but you have to prove to lenders that you truly have changed your financial ways.

Build a Solid History Following Bankruptcy

FHA loans are the popular loan product currently, and FHA guidelines require that you must be at least two years out of bankruptcy. The key is that you must have cleaned up your act since your bankruptcy and compiled a history of on-time payments. For example, if you opt for chapter 13 bankruptcy you had better pay your debt repayment plan on time, especially if one of those debts is mortgage-related. If you file chapter 7 bankruptcy and are renting, make sure you are on time with your monthly payments and verify that your landlord will say the same if questioned by the lender. Underwriters scrutinize these details and will not hesitate to disqualify you if they notice something spotty on your credit.

What This Means for You

While declaring bankruptcy was certainly a "wake-up" call, you need to understand it could be your "last call". There is not much room for error. If you continue to miss payments and accrue more debt, lenders will see the trend and will not make any exceptions.

After declaring bankruptcy, take steps to ensure that your credit history gets reestablished. As scary as it may be, you will need to take out credit cards and open other accounts to rebuild your credit. You will probably have to start with high interest rate loans and secured credit cards since your options will be limited. Some credit card companies and auto financers will give you better terms if you can convince someone to co-sign for you.

It will take hard work to rebuild your credit and establish your credit worthiness--but, the bottom line is that home ownership is in fact possible after declaring bankruptcy.

About the Author:
Heindrick So works for a Bay Area Real Estate company that specializes in residential wholesale lending. His work experience is comprised mostly of sales and marketing background which included a high end media sales position at Magnolia Hi-fi. Heindrick is also in his final year of pursuing his Bachelor's Degree in Electrical Engineering at San Jose State University.