One of our readers, Desiree, had this question:

Is there any possibility of getting a home loan sooner than 2 years after a bankruptcy discharge? My husband and I have continued to make car payments, have great payment history with the credit cards that we opened after we filed, and also have steady verifiable incomes. Is there any hope?

Thanks for your question Desiree!

It is possible to get a home loan sooner than two years after your file for bankruptcy, but it is difficult.

There are a number of steps you can take to tip the scales in your favor, but it is not a guarantee. Some lenders will not work with you on principle – because their company policy has a two year clause. If you put your paperwork in order, and choose your lender carefully, then there is a possibility that you can still get a home loan. If you and your spouse both declared bankruptcy, make sure you both go through these steps in preparation for the loan.

Steps You Should Take Before Meeting With A Lender:

1. Check All Three of Your Credit Reports - Make sure that every single account that was included in your bankruptcy shows up on your credit reports as being included in your bankruptcy. I had no end of trouble with this after my own bankruptcy. Companies that I had included in my bankruptcy continued to report my accounts as open on my credit reports. It took me several months to get everything straightened out.

   So, check all three of your credit reports, and make sure that each account has a notation under it that says “Included in bankruptcy”. If it doesn’t, then it is still counting against your credit score each month.

2. Challenge Any Negative Information On Your Credit Report - Obviously you don’t want to challenge every single negative item because it will backfire. If you challenge too many things at once on any of your credit reports, the credit bureaus will freeze your credit score until the dispute is resolved. So, just selectively challenge a couple of items that could have an impact and raise your score a little.

   Look for accounts that are incorrect, or situations where the same account was sold to several collection companies and each of them reported your debt individually. For step – by – step instructions on how to do this you can read this article: How to Dispute An Item On Your Credit Report

3. Check Your Credit Score: If your credit score hasn’t recovered enough to be in the high 600’s or low 700’s you will have some difficulty getting a home loan. If your credit score isn’t in this range, you may need to wait a few months and work on raising your credit score before you apply for any sort of home loan. You can check your credit score at MyFico.com
4. Make Sure Your Current Credit Cards Are Paid Off - If you are carrying a balance on any of your current credit cards, either make sure you pay the balance in full, or pay the balance down to less than 20% of your total available credit. Then give your credit report a couple of months to reflect the changes in your balance.
5. Interview Prospective Lenders: Ask them point blank on the phone whether or not they will work with someone who is less than two years out of bankruptcy. There is no sense in wasting your time or theirs. Some lenders will, some lenders will not.
6. Before You Meet With Your Lender: Make sure that you get all of the following paperwork together: Last year’s tax returns, six months to a year’s worth of proof-of-income, a current copy of your credit reports, your credit scores, proof of checking and savings accounts, your bankruptcy discharge papers, and anything else you feel might be relevant to a prospective lender. Take all this stuff with you to your first meeting. It will show that you are serious, and it will improve your chances of getting loan.

As a last recommendation, it wouldn’t hurt to pick up the book “Credit After Bankruptcy” by Stephen Snyder. I bought it used for a couple of bucks on Amazon, and it is literally full of quality tips. Best I remember, Snyder bought his own home almost right out of bankruptcy, and he details that process in his book. Remember though, that when he was going through the process, home loans were flowing like water – today the economic condition is not as good and it is going to be more difficult today than it was then.

I wish you guys the very best of luck as you go through this process. Be persistent, you may have to interview dozens of lenders in order to find one who will work with you, but it will all be worth the trouble when you are actually in your home.

Good luck, and please let us know how it goes. Also, please feel free to come back and ask any other questions that you may have about the process.

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This entry was posted on Tuesday, January 6th, 2009 at 16:29 and is filed under Bankruptcy FAQ. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.