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Bankruptcy FAQ

It’s still possible to buy a home after bankruptcy

On Behalf of | Apr 13, 2020 | Bankruptcy

Buying a home may seem impossible after bankruptcy. That’s because lenders are often skeptical of consumers with black marks on their credit report. Some may wonder if they’ll be reliable when making mortgage payments.

However, most Americans who declare bankruptcy are responsible, but had no choice after falling on tough times. Whether it’s due to medical debt, the loss of a job or the death of a loved one, it can only take one unfortunate event to put some people in financial ruin.

Luckily, by learning what different lenders expect and navigating the mortgage application process, those who’ve filed for bankruptcy can still purchase a home.    

Aside from rebuilding their credit, consumers may also want to address these questions before starting the process.

How long should they wait before starting the process?

Depending on the circumstances, most consumers must typically wait two years after bankruptcy to get a loan application. However, timeframes may vary, as lenders can have different requirements for getting approved.

If consumers don’t want to wait that long, they can see if they qualify for an FHA loan. These are mortgages issued by an approved lender that get insurance protection from the Federal Housing Administration. If a person or their spouse is a member of the military, they may be able to get a VA loan, which has a zero dollar mortgage option.

What steps should they take before applying for a mortgage?

Bankruptcy can harm a person’s credit. However, that doesn’t mean a damaged report is free of inaccuracies. If consumers want to double-check, they can look at this data from the three main national credit bureaus. Those include:

  • Equifax
  • Experian
  • TransUnion

If consumers find errors in any of these reports, they will want to contact any three of these bureaus to fix the issues and make sure all of their information is correct. Doing so can help improve consumer’s overall score and give lenders more confidence in their ability to pay.

Consumers should prepare to tell their story

Finding bankruptcy on a person’s credit report can raise red flags for most lenders. However, they’re more likely to sympathize with consumers who can prove they went through tough times but are otherwise financially reliable.