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How Long After Bankruptcy Can I Buy a House?

How long after bankruptcy can I buy a house? Well there is a question that people often want to know. They assume they will not be able to buy a home or get a mortgage after bankruptcy but that’s just not true.

The reality is most people that claim you can’t get a mortgage after bankruptcy, don’t know what they are talking about.

You see, people can actually buy a house right after a bankruptcy but if you need a new mortgage to do it, well that might take a little bit of time, but less than you’d assume.

No matter what people say, you can easily get a mortgage after bankruptcy.Click to Tweet

There is nothing stopping you from entering into an agreement to buy a home the day after your bankruptcy discharge using a couple of different methods. Immediately following bankruptcy you could enter into a deal to buy a home with a rent with option to buy or lease with option to buy. In this arrangement part of your monthly rent payment is applied towards the purchase price of the home. You’d be able to move in now, pay rent and build a downpayment and then get a mortgage in a couple of years.

If you decide to go the lease or rent with option to buy route make sure that the lease/rental agreement is recorded at the county court house so the landlord can’t go out and sell the house of get a new loan on the property while you are preparing to buy it.

You want to make sure your purchase position in the property is protected. You may also want to consult with a locally licensed real estate attorney about the best way to handle this in your area. A consultation will be money well spent.

You might also want to suggest that the payments are sent to a third-party company to account for so there is no dispute later about how much you paid and what the credit is towards the purchase when it comes time to buy.

But if you don’t want to go that route or you can’t find a willing seller or landlord to use that approach with, all is not lost.

You Can Buy a Home Following Bankruptcy

The key to getting ready to getting yourself qualified for a new mortgage is going to be a bit of effort, some saving, and time.

The first step to take is to look over your credit report after bankruptcy. Just follow the instructions below.

Get a Copy of Your Consolidated Credit Report

Get a copy of your consolidated credit report. It is the type of report that includes all the major three credit reports in one report. I only use a consolidated credit report to check my credit and the link will take you to the credit report I use.

Your credit report is like a report card of sorts. You need to look it over and make sure that all the accounts listed on your credit report are yours. If they were not, you need to write to the credit bureaus that are reporting them and tell them they are not your and ask to have them removed. It’s like you looked at your school report card and it listed classes you did not take. They should not be there.

If the rest of the accounts belonged to you but you had a bad track record with them, that information stays on the report just as if you got a D in a class you took. Just because you got a bad grade does not mean the class is removed from a report card.

After seven years the bad credit items will no longer be reported on your credit report. When you look at your consolidated credit report if any of them list negative information longer than the seven year period, then when you write to the credit bureaus to point out any incorrect information, you can tell them about the old items.

Generally the credit bureaus are good about automatically removing the old items.

While you are at it, look for any delinquent accounts that may be younger than seven years old. If you have any, pay them off. The contact information for the creditor will be on your credit report.

I also recommend you get a free account on Credit Karma so you can use the free credit simulator to see how changes to your balances or accounts will improve your credit score. This way you can plan what actions to take first to get the maximum improvement.

Credit Karma will also provide free daily credit report monitoring and free credit scores but only for one credit bureau. Still, it’s a free service that can be very beneficial.

The second step is to rebuild your credit and turn it around. There is no need to pay for “credit repair” when all you really need to do is start getting good credit reported again.

Boosting Your Credit Score With Good Credit Using a Secured Card

Using the report card analogy, if you wanted to bring up your GPA you would need to earn some better grades to do it. It is the same with your credit report. If you want to bring your score up you need to start having new and good credit reported about you.

The best way to do this is to get and use a secured credit card. In fact get two different ones. I put together a section of the site that lists reviews for secured cards. Look at the secured cards here.

The advantage of getting a secured card is that you will get the credit card and not get a rejection on your credit report that will further hurt your credit. A rejection can be easily spotted by looking at the inquiry section of your credit report and seeing there is not a corresponding card opened. And with your current bad credit, if you applied for an unsecured card, you would get rejected.

The reason you will get the secured credit card on the first attempt is because you need to put up a deposit with the bank that is equal to your credit limit. The deposit will earn you interest and in the unfortunate event you were unable to pay your card and defaulted, the bank would use your deposit to pay the debt.

When looking for a secured card you want one that will report to all three credit bureaus. This is key. We need your new good payment history reported.

Now when I say use the card, you do not need to carry a balance from month to month. Just use the card for regular purchases and pay the card off either immediately or at the end of the month.

Also, if you get a secured card with a $300 limit, never have more than 35% of the limit on the card. Even though your initial limits may be low, you don’t want to max them out. You can always increase your limits by increasing your deposits. You can increase your credit limit by increasing your deposit with the card company.

I suggest getting more than one card so you can get as much good juice flowing to your credit report without having too many credit cards open. You could actually go with three if you wanted to, but no more than that.

Just make sure the card will report to the credit bureaus.

Step Three – Start Saving

Once you tackled the credit report and started rebuilding your credit again you need to start saving all the money you can towards a downpayment and other new home owner expenses. The more cash you have on hand when you are ready to buy, the easier it will be to get approved for a mortgage.

And when you are saving, don’t try to get tricky or clever. Just stash all your extra cash you can into a savings account or other investment account where it won’t lose money or get locked up, like in a CD>

How Long After Bankruptcy Can I Buy a House?

The answer is a couple of years if you follow the mortgage route and the guide I gave you above. After twenty months of following the plan I laid out where you review your credit report and start build credit immediately you should contact a local mortgage broker to get ready to get qualified for your new mortgage. A mortgage broker represents a number of lenders so you’ll have a greater opportunity to get approved and buy your house.

But when it comes time to buying there are two points to watch out for.

  1. Just because a lender will approve you for a mortgage, does not mean you can afford it. When you look at homes to buy, please consider a home that is priced low enough so you can easily afford it on about 75 percent or less of your income.
  2. Real estate agents make more money by selling you a more expensive home. Don’t let the agent steer you towards homes you can’t afford. Set an upper limit and stick to that line in the sand.

The Reality

So you see the reality of being to buy a home after a bankruptcy is that despite all the rumors and whispers about not being able to get a mortgage for ten years, you actually will, and in a couple of years.

When you are ready to buy, I’d suggest you approach your mortgage broker and real estate agent and be open and honest about your bankruptcy in the past couple of years so they can do their best to help you finally buy the home you’ve been waiting for.

All is not lost just because you declared bankruptcy. Ironically, if it wasn’t for your bankruptcy filing you’d probably not be able to afford to save money and clean up your credit. Don’t worry, your consumer bankruptcy gave you a fresh start and a second chance, now go enjoy it wisely in your new home.

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To get ready to read the information below with the right frame of mind, please first read How Do I Get Out of Debt Quickly? Change Your Mindset.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Björn Borg Josëf

    I’m meeting with a bankruptcy lawer tomorrow actually. I’ve already set my goals to not screw up my credit again. Secured ccards were one of them. Didn’t think to get two or three and definately didn’t think to make sure they report to all three agencies. But this article has inspired me!. Thanks!

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