When someone here in Southern Maryland comes to me to file for bankruptcy they sometimes ask if they will ever be able to get a mortgage to buy a house. Since many people just assume they never will be able to, I always make sure to tell them that yes they can, even when they don’t ask this question.
If you have received a Chapter 7 discharge you may be able to get a mortgage loan within 2 years. Perhaps even less if you qualify for certain programs that shorten the wait if had to file for bankruptcy because of a loss of employment or certain other hardships. If you have to filed a Chapter 13 you can even get a mortgage loan while your case is pending and you are making plan payments on your debts. While the loan has to be approved by the Bankruptcy Court, you may be able to get a mortgage loan once your plan has been confirmed and you have made a year of plan payments on time. The myth that you can’t get a loan after bankruptcy just isn’t true. See the article Real Estate Fact or Myth by Don DeHanas to make sure that you are not being held back from looking to buy a home by other myths.
Bankruptcy is about being able to get a fresh start. So while it may sound strange, in most situations I find that clients are probably going to be able to get a mortgage loan quicker if they file for bankruptcy than if they don’t. In fact when helping someone decide if they should file bankruptcy we always look at if there is a way to pay off their debts without filing for bankruptcy. We then look at how long it would take to recover from that plan and compare that to how long will it take them to bounce back from filing for bankruptcy.
Many people are surprised that when they file for bankruptcy they will get mail offering them a car loan or a credit card. This isn’t as crazy as it seems. After all, when you get a bankruptcy discharge you may not owe anyone any money, and it could be eight years before you are allowed to file for bankruptcy again. Some lenders may look at this as a good time to lend you money.
With a mortgage, there will be a wait. And it will take some work and discipline to improve your credit score. But that wait may be less than you think. It also will probably not take nearly as long to improve your credit score as it would to pay off all your debts and then rebuild your credit. The important thing to do is to come up with a plan. Don’t wait until you think you are ready to buy to meet with a mortgage lender. Meet with them at least 6 months or even a year before you think you might be ready to buy. They can pull your credit and help you come with a plan to make sure you will have the credit score you need to get a loan. If you have followed our guide on Bankruptcy and Credit you might be surprised how much your score has recovered. And maybe they can help you find a loan program that will help you bounce back to homeownership sooner than you thought possible.