How to Buy a House With a Bankruptcy Discharge

Buying a home after bankruptcy is very possible.

A buyer's credit history is a major factor when applying for a mortgage to buy a home. Many consumers believe it is difficult to purchase a home after a bankruptcy, but that is far from the truth.

Time Frame

Most lenders look at a borrower favorably if he took steps to rebuild his credit after a bankruptcy is discharged. In some cases, rebuilding credit can be done in as little as 18 months, but will typically take closer to two years.

Use of Credit

Borrower's applying for a mortgage should have a good payment history and solid mixture of credit sources. Having a credit card and a vehicle loan that remained in good standing for a minimum of 12 months are good credit-boosting factors for a consumer with a prior bankruptcy.

Letter of Explanation

Mortgage underwriters may request a letter explaining the circumstances surrounding a bankruptcy, even if it has been discharged. The mortgage holder uses the letter to assess the risk of extending a loan. Well-written letters explaining a hardship that resulted in bankruptcy are often looked at favorably by underwriting departments.

References

• Federal Trade Commission: Knee Deep in Debt