How to Get a Home Loan After Bankruptcy

If you've suffered a bankruptcy, that doesn't necessarily mean you can't get a home loan. The key is having patience and doing the work needed to get banks interested in lending to you again.

So let's tackle the issue of getting a mortgage after a bankruptcy, and see what tips and strategies work the best.

Think positive. Maybe the number one roadblock to getting a mortgage loan after a financial disaster is the (understandably) common mindset that nobody wants to lend you money right now. This is not necessarily true. In fact, it may be easier to get a home loan after a bankruptcy than it is for simply having bad credit. But you have to recognize that all is not lost and that you have to take concrete steps to put you in the best financial position.

Adhere to your bankruptcy conditions. The first concrete step back on the road to good credit is to honor your bankruptcy. In other words, make the payments you're supposed to make, and make them in full and on time.

Use your bankruptcy time to clean up your credit. Typically people in financial distress can get a home loan after even one year of bankruptcy (if you declare Chapter 13 bankruptcy). With other forms of bankruptcy, it might take two years to qualify for a home loan. Use that time to repair your credit, pay your bills, and hit the credit "refresh" button.

Here's a tip: A secured credit card is usually easy to get and can start you back on your way to good credit. Use it sparingly and pay it off (once again) on time and in full. A good record of timely payments on a secured card can be the first big step in restoring your credit and qualifying for a home loan. Aim for a credit score of 650-and-up to better your chances for a home loan.

Establish a record of regular income. Mortgage lenders don't focus only on your credit score; they also want to know that you earn a regular paycheck. So be prepared to document that regular income by storing six months or so worth of pay stubs, another six months of bank statements, and two years worth of tax returns.

Hike your down payment. When you apply for a mortgage after bankruptcy, aim for a down payment of at least 20% -- the higher the better. The 20% minimum allows you to bypass the private mortgage insurance stipulation for lower down payments. If you can't raise the 20%, aim for at least 10% for a down payment. Realistically, anything less and you're out of luck.

Buy a foreclosed home. Home foreclosures are on the rise and should remain so well into 2010. Such homes represent great value, especially for people in bankruptcy who may not have a lot of cash on hand for a big down payment.

Get an FHA loan. Federal Housing Administration home loans enable home buyers to get a home with less than 3.5% down. And they're flexible about bankruptcy candidates, too. According to the FHA Web site: "You may buy a home or do a refinance mortgage using FHA loans two years after the date of discharge for a bankruptcy, assuming that you have maintained perfect credit since the bankruptcy discharge with a FHA streamline refinance loan."

So if you're in bankruptcy, and still want to buy a house, keep your chin up. With some hard work and some time to heal your financial wounds, anything is possible.

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