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Buying a Home after Bankruptcy

By Gretchen Wegrich Updated on 7/19/2017

BankruptcyIn the face of bankruptcy, buying a home may seem like an impossible endeavor. Many people believe that low credit scores prevent them from ever qualifying for a mortgage loan in the future. Although buying a home after bankruptcy is not without challenges, qualifying for a mortgage loan is still possible.

The good news is that banks and home mortgage lenders do not just look at your credit score when they evaluate your application. They already know you are short in this aspect because your bankruptcy will show on your credit report. When attempting to acquire a home loan to buy a house after bankruptcy, lenders are looking for several other conditions besides credit score: income verification, re-established credit, and the ability of the prospective borrower to make a down payment.

How can I recover from bankruptcy to buy a home?

Although your credit score will take a substantial hit after you declare bankruptcy, many other factors come into play when banks and mortgage lenders consider whether a borrower qualifies for a loan. Primarily, borrowers must undergo a waiting period after bankruptcy to get a new home loan. Below is a list of companies that can assist you either secure a mortgage or restore your credit after bankruptcy:

How long do I have to wait after a Bankruptcy to get a new mortgage?

Depending on the loan type and size, borrowers may need to wait several years before being eligible for a new home purchase loan. The table below shows the typical “waiting periods” for various loan types:

 Chapter 7 BankruptcyChapter 13 Bankruptcy
Conventional Loans4 years
2 years (w/ extenuating circumstances)
2 years (from discharge)
4 years (from dismissal)
FHA Loans2 years
1- 2 years (w/ extenuating circumstances)
12 months on-time payments 
USDA Loans3 years
< 3 years (w/ extenuating circumstances)
12 months on-time payments
1 years (from discharge)
VA Loans2 years
1-2 years (w/ extenuating circumstances)
12 months on-time payments 


Below is a list of companies that can assist you to secure a mortgage loan or restore your credit after bankruptcy:



What do I do during the waiting period after bankruptcy?

To buy a home after bankruptcy, lenders will look closely at your post-bankruptcy credit history. However, if you have made some smart decisions and established responsible new debt, you should be able to acquire a loan.

Reestablishing good credit is one of the most important goals you should make for yourself during the waiting period. Even though you may get to the point where you have waited the mandated amount of time, if you have further late payments since the bankruptcy or perhaps not acquired any new debt, a mortgage approval will be difficult. You must be actively involved in restoring good credit after a bankruptcy.

Though filing for bankruptcy is not the ideal situation to be in, it is an opportunity for a fresh start. Believing and practicing this idea is the best way to show a lender you are ready for another chance. After a bankruptcy, the most important steps to take are rebuilding your credit and, in doing so, proving your reliability.

How can I rebuild my credit?


Rebuilding your credit is quite simple. To start, take a look at why you filed for bankruptcy in the first place. If you were unable to make payments on time, you need to find the root of this problem and correct it before starting anew. The worst possible course of action following a bankruptcy would be to repeat the same mistakes and tarnish your credit a second time.

Make sure that your credit report is current

After a bankruptcy, you need to verify that your accounts and credit reflect your current situation. If anything is not up to date or if you notice any errors on your credit, make sure to resolve these issues before you start trying to rebuild your credit. Obtain your credit report and make certain that all accounts that included in your bankruptcy are correct. 

Apply for a credit card 

Applying for a credit card will help you to establish a new credit history and prove to a lender that you can manage your finances responsibly. Getting a secured credit card can help even more as it restricts your spending to the amount on deposit in your bank account.

Installment loans

While you recover from bankruptcy, installment loans can help you to improve your credit score while you are unable to seek traditional loans. These loans are paid back in monthly installments.

Make payments on time!

It is of vital importance to make your payments on time after filing for bankruptcy. Since you already have a history with bankruptcy, additional late payments will significantly diminish your chances to secure a loan. You may also put yourself deeper in debt by missing payment deadlines.

What do I do after I have established credit?

Prove your income with steady employment

If you can demonstrate that you’ve become more responsible in managing your finances, your chances of buying a home will significantly increase. Having steady income and a two-year employment record is the best way to demonstrate that you are responsible and capable of making the most of a second chance.

Save for a down payment

While you manage your income, you should save money to put toward a down payment. Aiming to put 10 percent down will improve your chances with a lender when the time comes to secure a mortgage, although there are loans available after bankruptcy that allow for a smaller down payment.

How can I raise my down payment?

Down payment assistance programs

Each state offers various Down Payment Assistance programs. Research the available programs in your state. If you are planning to buy a home in a rural area, the USDA offers a loan program with a zero percent down option.  

Gifts from family 

Your family is allowed to give your gifts towards your down payment. If you have several siblings, even small financial gifts can add up.

Withdraw funds from a 401k 

If you are unable to save as much as desired for a down payment, consider cashing out a 401K or other investment. You can repay yourself later with a second or third mortgage (home equity loan/home equity line of credit) once the mortgage loan has closed.  Remember to consult a financial advisor when making important decisions about your financial future.

Where should I look for a lender post bankruptcy?

When applying for a loan, post-bankruptcy or otherwise, it is always a good idea to discuss your prior bankruptcy or credit problems up front with a loan officer so that he/she can fully understand your scenario and find the right loan. Have a conversation before having your credit report run. For borrowers that have filed for bankruptcy or undergone a similar dent in credit score, lenders will offer loans with slightly higher interest rates than to borrowers with excellent credit. For this reason, you want to strive to increase your credit score following our advice on repairing your credit.

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About The Author:
Gretchen Wegrich
Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.

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