If you’re thinking about buying a home after filing for bankruptcy, you’re not alone. Many people wonder whether they can ever qualify for a mortgage again. The answer is yes, but it depends on several factors, including the type of bankruptcy you filed, how long it’s been since your discharge, and the steps you take to rebuild your financial profile.

Let’s dive into what you need to know about buying a home after bankruptcy and how you can improve your chances of getting approved for a mortgage.

Is Buying a Home After Bankruptcy Possible?

Yes, It’s Possible—But It Takes Time and Effort

Bankruptcy provides a fresh start by eliminating unsecured debts like credit cards, medical bills, and collections which improves your debt to income ratio. However, it also requires you to rebuild your credit history before you can qualify for a mortgage.

While it may take time, purchasing a home is definitely possible after bankruptcy. The key is rebuilding your financial situation, stabilizing your credit, and proving to lenders that you can responsibly manage a mortgage.

Chapter 13 vs. Chapter 7 Bankruptcy and Mortgage Approval

  • Chapter 13 Bankruptcy: In some cases, it’s possible to apply for a mortgage during your Chapter 13 repayment plan. Lenders may look at your ability to maintain regular payments and may approve a mortgage if you’ve demonstrated consistent financial responsibility. Mortgage lenders will usually require proof of one year of on time plan payments.
  • Chapter 7 Bankruptcy: After your Chapter 7 bankruptcy is discharged, you may have to wait a about two years for a VA or FHA mortgage and three to four years before qualifying for a conventional mortgage, but with a solid plan, it’s definitely achievable.

Steps to Take After Bankruptcy to Qualify for a Mortgage

1. Rebuild Your Credit History

After bankruptcy, maintaining a good credit history is crucial. Here’s how you can rebuild:

  • Make On-Time Payments: Be sure to pay your car loans, student loans, Nebraska Furniture Mart card, and any other debt you still have on time. On-time payments can help raise your credit score over time.
  • Open a Secured Credit Card: A secured credit card is an excellent way to rebuild credit. These cards require you to deposit a certain amount of money, and your credit limit is typically equal to that deposit. Use the card responsibly, and the issuer may increase your limit as you demonstrate good payment habits.
  • Avoid Late Payments and Over-Spending: Never spend more than you can pay off in full at the end of the month. Keeping your balances low and paying them off regularly will help improve your debt-to-income ratio, a crucial factor for mortgage approval.

2. Save for a Down Payment

Mortgage lenders want to see that you have a stable financial foundation. Start saving for an emergency fund, larger purchases, and a down payment for your future home. Having a solid savings plan can help boost your application.

  • Emergency Savings: A good rule of thumb is to save at least three to six months of living expenses to show lenders that you’re financially responsible and can handle unexpected costs.
  • Down Payment: The larger your down payment, the more attractive your mortgage application will look. Having a down payment of at least 20% can make a huge difference in qualifying for a mortgage.

3. Maintain Stable Employment and Income

Lenders want to see that you have a reliable source of income. Maintaining a steady job and contributing to your retirement savings will demonstrate that you’re a dependable borrower. Stability in your work life shows lenders that you’re less likely to face future financial struggles.

What Mortgage Lenders Are Looking For

When you apply for a mortgage after bankruptcy, lenders assess your ability to repay the loan. The main factors they’ll look at include:

  • Debt-to-Income Ratio: This is the amount of your monthly income that goes toward paying off debt. If you continue carrying high credit card balances or other debts, your debt-to-income ratio will be too high, which may disqualify you from getting a mortgage.
  • Credit History: Your credit score will be an important factor in whether you qualify for a mortgage.
  • Down Payment and Savings: Having a substantial down payment and savings will increase your chances of qualifying for a mortgage.

Final Thoughts: Take Control of Your Path to Homeownership

While bankruptcy can initially set you back, it doesn’t mean that homeownership is out of reach forever. By following the steps outlined above—such as rebuilding your credit, saving for a down payment, and maintaining stable employment—you can eventually qualify for a mortgage and purchase your dream home.

Our office can recommend mortgage lenders who are happy to get you into your first home or next family home after bankruptcy.