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Filing a bankruptcy and receiving a discharge in bankruptcy, whether Chapter 7, Chapter 11 or Chapter 13 does not create a barrier to home ownership if the individuals are otherwise able to become credit worthy in the future. The central premise of bankruptcy law in the United States is to give individuals a fresh start in their financial lives. Property acquired after a bankruptcy filing is not subject to the claims of pre bankruptcy filing creditors or the bankruptcy trustee acting on behalf of creditors. Home ownership is almost everyone’s dream. Filing a bankruptcy does not mean a person’s financial ‘death’. Many people are able to get back on their feet and prosper after receiving a bankruptcy discharge. The crushing weight of old debt is off their shoulders. They are now, once again, free to work and earn and save money free from the lawsuits of past creditors. Most of us need to obtain a mortgage in order to buy a home. The willingness of a company to lend you money depends in large part on how you have rehabilitated your creditworthiness after a bankruptcy filing. Many lenders use the Fair Isaacs credit scoring system. This is available to you at www.myfico.com. People with good credit get the best interest rates since they are at the lowest end of the credit risk. They are more likely to pay their debts and some one who has a lower credit score. Generally the lower your FAIR Isaacs score, the higher the interest rate you will pay. You can help make up for this by making a larger down payment, buying a less expensive home, asking a family member to co sign the note and mortgage, asking family members for a gift of money to increase your down payment. At certain lower credit levels this will not work. Time and a responsible use of credit including paying on time in the required amounts should help improve your credit worthiness score. After two years post bankruptcy, your credit score is no longer adversely affected by the bankruptcy filing. Many clients come back to our office after a bankruptcy filing with mortgage pre qualification letters in one hand and contracts to buy homes in the other hand. Imagine how good it makes everyone in our office feel when I hand someone the deed to their new home after having represented them in a bankruptcy proceeding!! The mortgage lending industry is very competitive. There are ‘bankruptcy friendly’ lenders willing to consider mortgage applications from people with less than perfect credit. Some mortgage brokers and representatives even specialize in helping post bankruptcy borrowers to buy homes. Be sure that you understand exactly what the prospective lender has promised you before you part with any money for a loan application or a credit report. Loan fees, escrows for taxes and insurance and closing costs are expensive. A smart buyer shops around and compares prices and costs. Many mortgage companies are paid from your closing costs and a payment from the bank or other investor that buys the loan. If you don’t take their loan, they do not get paid. To guard against this they charge application and other fees. Condo and unit owner association charges can also run up your closing costs. Plan ahead and be very careful to allocate extra money just in case. It is important to save a copy of your bankruptcy discharge. Most lenders may ask you for it.

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by Heather

5 months ago

Asker's Rating: 

Bankruptcy does not apply to medical bills, Trying to buy a home before declaring bankruptcy is considered fraud.

by sassy2- 5 months ago

I am sorry for all your trouble, I hope the kids are doing better. If you are drowning in debt over the hospital then you should look at chapter 7 bankruptcy. I'm sorry to say I don't think you would qualify due to your current finances, FHA is a great loan, but you still have to qualify with a bank. Instead, have you considered signing up with the local housing agency in your area for rental assistance it is called a section 8 voucher system. You sign up, and must qualify for income under a certain amount (I think it is like $35,000 for a family of 4), wait for your number to come up, then find a place that fits your families living needs. The program will pay $70% of whatever your rent is. They also have programs in the assistance program to help you buy a home in the future.

by Georganna V- 5 months ago

Not much of a chance you'd be able to get a mortgage now from the way you describe your situation, so sounds like you'll have to wait awhile. Good luck.

by Judy- 5 months ago

If your finances are so bad that you are considering bankruptcy, you will not qualify for a mortgage -- FHA or any other type loan. All those outstanding debts will be taken into consideration and count in your debt to income ratio. Your only option is to file the bankruptcy now and wipe out all those debts. Then during the next two years work on rebuilding your credit and saving for your down payment.

by bdancer222- 5 months ago

Take a look at your credit reports. Pull all three reports for yourself and your husband. I'm sure you meant a mountain of debt, it makes me wonder about things like debt ratio and credit scores. These two things, as well as employment history, income and assets, will be the determinants used by the lender. Line up your credit scores, and line his up right beneath yours. Put the highest one first and the lowest one last. Now take a look at the two in the middle. The lender will most likely use the lower of those two scores. Once you file BK, you limit your options for at least a few years. Some lenders require that the filing is at least 2 years aog, but others require the discharge to be 2 years ago. Each lender then has other requirements. It's very difficult to get a mortgage from the lender where I work after a BK. Your circumstances appear to be acceptable, but I don't really know the whole story. One of our biggest things is that the BK wasn't caused by your actions. Someone getting sick is acceptable, things like losing your job or getting divorced however, are not. There are a lot of other things too, like newly established credit and not one single late payment since declaration. Talk to a lender once you've seen your credit reports. They cost $6 to $8 each, and the application fee at many lenders is a whole lot more than $50. Don't apply unless your scores are in the high 600s and your debt ratio (add up your debt as it appears on the credit report, including the new mortgage, taxes and insurance, and divide that by you gross monthly income) is 40% or less. The lower the better here. Here's a calculator to figure out payments. www ... One last thing: there's a lot more to home ownership than the mortgage. Anything that needs fixing will cost you money. There's no super to fix it anymore. Last week my washer shorted out, and the air conditioner needed all new tubing, to the tune of $395. The washer had another solution, but if I'd had to have a repairman, it would have had to wait.

by daeve930- 5 months ago

The dream you have of wanting a home can quickly become a nightmare if you are taking on debt that you cannot afford to repay. The real answers to your questions will come from a banker and/or a bankruptcy attorney. You may find yourself homeless and in deep debt.

by rayt721- 5 months ago