Bankruptcy Alternatives

Do You Know How Bankruptcy Affects Your Ability to Purchase a Home Once Again?

The main way that a bankruptcy affects your ability to purchase a home is that it erodes lender confidence in your ability to pay back money that your borrow.  If you have been through bankruptcy proceedings, then you already know that a bankruptcy will remain on your credit report for seven years if it was a Chapter 13 proceeding and ten years if the bankruptcy was either Chapter 7 or 11.  However, this does not mean that you have to wait until any of the time periods that pertain to you have elapsed before you look to purchase a home.

Generally, what you need to know is the way lenders will look at you after a bankruptcy filing and you need to be patient and allow some time to elapse before you make an attempt to get a mortgage loan.  Lenders are in the business of making a profit from people borrowing money and they will not lend money without assessing the risk associated with lending money to a borrower.  As a rule, the greater the risk, the greater the difficulty in getting a loan, the less money that you will be able to borrow and the higher the interest rates that will be applied to the loan.  You should keep this in mind and save for a sizeable down payment so that you can make yourself more attractive to the lender.

If you have managed to save a sizeable amount of money for your down payment after having filed for bankruptcy, it shows the lender that you are indeed able to manage your finances.  You should also be able to show that you have been timely in paying any debts and other bills so that your credit report is not affected any more than it already is. 

The idea is to show the lender that you are not much of a risk, despite the bankruptcy, when it conducts its risk assessment.  After all, what the lender wants to do is to be as sure as possible that it will get its money back at the profit it will negotiate with you through the rates it is going to charge.  If you present too much of a risk, no money will be loaned to you.  The lesser the risk, the more likely it is going to be that you will get a loan at terms that will not be too unfavorable. 

In any event, it is not likely that you will get any mortgage loan for at least two years after having filed for bankruptcy, although there are special cases where you can get a mortgage loan after one year if you can show that extenuating circumstances beyond your control caused the bankruptcy and that you have shown the ability to handle your finances since then and that the situation or events that led to the bankruptcy are unlikely to occur again.

On a more positive note, discharge in a bankruptcy probably improves your capacity to repay a loan because you no longer have to pay what you owed before bankruptcy, there are no judgments against you, no wage garnishment or other restrictions that may have kept you from paying back a loan.