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How Does a Previous Bankruptcy Affect Your Ability to Buy a Home?

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By : marco benavides    99 or more times read
When you file for bankruptcy, you are telling your creditors that you are unable to meet your payment obligations. This is the one thing that stands out when you attempt to purchase a home after a bankruptcy. The fact is that mortgage lenders are in the business of making money. When they make a mortgage loan, they are taking a calculated risk, according to their risk assessment guidelines, that you will be able to make your payments and that the mortgage lender will recoup its money plus the interest you will pay for using the lender's money.

What you are up against, therefore, is what your credit report will show after you have gotten your discharge in bankruptcy. Your bankruptcy will show up for several years after your discharge (7 years for Chapter 13 bankruptcy and 10 years for Chapter 7 and Chapter 11 bankruptcy.) On the other hand, you do not actually have to wait seven or ten years to try to obtain a mortgage to purchase a home. You can usually try to do so after two years of having had a personal bankruptcy.

However, the most important thing is what you have done to make yourself look better to lenders during those two years that will really matter. Mortgage lenders want to know whether you can pay back the money you are going to borrow. You have to show them that you are now able to meet your credit obligations in spite of having gone through a personal bankruptcy.

Two years is considered by most lenders to be plenty of time for you to be able to make yourself a low risk applicant and to establish your credit once again. There are some circumstances where you would be able to get a mortgage after one year, but you would have to show that the circumstances which caused you to go into bankruptcy involved mitigating circumstances not under your direct control and that your current financial situation is such that bankruptcy will not occur again because those circumstance are not likely to reappear.

Unless you fall under those special circumstances, the minimum waiting period would be two years. During that time, you should go about establishing credibility and trying to show that you are not a risky loan applicant. If you go into negotiations with a good down payment, the lender is likelier to pay attention. Saving money shows that you are disciplined and can use good judgment in your financial affairs.

Try to show mortgage lenders that you can pay back money by borrowing smaller amounts and paying it back. It takes some time and work but it can be quite helpful in rebuilding your credit and credibility. It is not impossible to get credit after bankruptcy, but it generally involves more onerous conditions such as being able to borrow less money and paying higher interest rates than you otherwise would. It would not be a bad idea to go talk to an attorney specializing in bankruptcies to see how a bankruptcy would affect any future home purchases.
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