You can qualify for a home loan once your bankruptcy has been discharged for at least two years. If you declared Chapter 13 bankruptcy you can apply for a home loan after one year of regular payments on your debts – with court approval.

If you do want to apply for a home loan, there are several things you can do to ensure that you are able to get your financing at the best interest rate possible.

1) You need to rebuild your credit history - If all you have on your credit report is a bankruptcy, and you make no attempt to re-establish your credit during the two-year waiting period you will not be able to get a loan. If you are trying to re-establish your credit after bankruptcy the best place to start is with a secured credit card. They have the lowest overall fees and interest, and you get your initial deposit back when the card converts to an unsecured credit card.

2) You need to have a spotless or nearly spotless payment history after your bankruptcy - A bankruptcy is a serious (arguable the most serious) black mark on your credit. If you want to show lenders that you can handle regular payments, you need to have a couple of years worth of on-time payments showing up on your credit reports.

3) You need a steady, predictable income that can be verified - Your credit report is not the only thing lenders look at when they make a decision about you. How much money you make regularly is just as important as your past credit history. You will have to be able to show proof of a regular income via paycheck stubs, bank statements and tax returns.

4) You need a down payment that is as large as possible - Ideally you would want a 20% down payment on your new home because it will allow you to skip the Private Mortgage Insurance (which will raise your monthly payment considerably) and show lenders that you are serious about buying home. However, 20% down on a home two years out of bankruptcy is unrealistic for most people. If you cannot get 20% down by the time you apply for a home loan, have as much as possible. You should not apply for a home loan with less than 5-10% of the money down.

5) Consider Getting an FHA or a VA loan – These types of loans will allow you to qualify with as little as 3% down, and their lending policies are much more forgiving.

• FHA Loans - The Federal Housing Administration can insure your loan. Since the FHA is a government body it makes your application look at lot more attractive to lenders since the government is basically backing your loan. You can find our more about FHA Loans as well as whether or not you qualify here.
• VA Loans – Veterans may qualify for assistance with VA loans. You can find out more about them here.

6) If you need down payment assistance you can check out programs like Nehemiah or Neighborhood Gold.

• The Nehemiah Corporation is the largest privately funded mortgage assistance program in the US. They have a free pre-home ownership education course that you can go through as well.
• Neighborhood Gold is a non-profit program that assists people who qualify for an FHA loan to qualify for a mortgage with no down payment or closing costs.

7) Don’t forget to plan for the closing costs, taxes, home owner’s insurance, and regular maintenance you will need to do on your home. Unexpected expenses can eat you alive after you get your home, and you don’t want to be late on your mortgage payments ever.

8)Check your credit report before you approach a lender - Depending on your credit score (which you can access through MyFICO.com) you will either want to apply for a home loan through a regular lender, or a sub-prime lender. If your credit score has not recovered from your bankruptcy (650 or below) you may not be able to get a home loan, and you will certainly have to visit a sub-prime lender if you do. However if your credit score is near or over 700 then you will be in good shape to visit a regular lender.

9) Consider buying a foreclosed home - If you purchase a foreclosed home you can usually get a beautiful home at a fraction of the normal price. You can learn more about home foreclosures here.

I know that with the economy the way it is you may feel like you cannot get a home loan because of your bankruptcy, but that just isn’t true. You can qualify for a home loan two years after your bankruptcy if you follow the steps above. Just make sure that you have repaired your credit score as much as possible, and that you have regular income and a down payment. There are plenty of organizations and assistance programs that can help with your financing if you don’t qualify to go through a regular lender.

The important thing to remember is that while you may have more trouble getting financing that someone without a bankruptcy it is available, and it is possible.

Have a question for us? Leave a comment below!

Keep Reading:

• How To Get A Car Loan After Bankruptcy
• How to Get Credit After Bankruptcy
• Credit After Bankruptcy – How to Get Credit and Manage New Credit Accounts

This entry was posted on Monday, December 15th, 2008 at 17:04 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.