How To Buy A Home After Bankruptcy

December 26, 2011

There are many myths surrounding bankruptcy. Fortunately, these myths can be quickly dispelled during a free consultation with an experienced bankruptcy attorney. One of the most serious myths is that an individual with a history of bankruptcy cannot qualify for a home loan. This myth can prevent someone deep in debt from obtaining needed relief.

The truth is that while banks hate bankruptcy, they love federal guarantees. The Federal Housing Administration (FHA) is a government agency that insures certain home loans, and its policy for qualifying for a home loan is very flexible. The FHA will guarantee a home loan after a bankruptcy when:
Twenty four months have passed since the bankruptcy has been discharged;
Any outstanding tax liens have been paid or the appropriate arrangements have been made via a repayment plan on file with the IRS or Department of Revenue;
Three years have passed since a foreclosure or a deed-in-lieu has been resolved; and
All judgments have been paid.

FHA-insured home mortgages are also available to Chapter 13 debtors during bankruptcy. The debtor must (1) have completed one year of payments as required while under Chapter 13 and (2) must obtain a letter from the Trustee of the court, stating the dollar amount the applicant can borrow.

In addition to the above, individuals must meet the mortgage lender’s criteria. This usually means showing a stable employment history, a manageable debt to income ratio, and a good credit score. Surprisingly, most debtors are able to improve their credit scores quickly after a bankruptcy discharge. Your credit score is weighted heavily on recent events, so when you file bankruptcy your score will immediate plummets. However, the farther you are from your bankruptcy discharge, the better your score will become. Additionally, an absence of credit delinquencies and a solid history of on-time payments after your bankruptcy case will boost your credit score.

Many debtors are able to purchase a home 24 months after a bankruptcy discharge. In many cases home ownership is only possible after debts have been discharged by the federal bankruptcy court. If you are struggling with debt and want to purchase a home, speak with an experienced attorney and learn how the federal bankruptcy laws can help.

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