Bankruptcy Can Help You Qualify for a Future Home Purchase

Home loan approval is the first step.

Buying a home is a complex transaction. For many buyers, there are two major hurdles: first, finding the right home in your budget, and second, getting approved for a loan. Bankruptcy can't help you find a home, but it can help you qualify for loan approval.

Loan approval is complicated, but it includes looking at your debt to income ratio. By eliminating debt in a bankruptcy, you improve this ratio -- because once the discharge is entered, most, if not all, of your debt should be eliminated.

Additionally, by removing negative accounts from your credit report, you can start building positive credit again. The better your credit score, the more loan options you will find available to you, giving better options regarding interest rates and down payments.

There is nothing in the bankruptcy code that prevents you from buying a house.

During a Chapter 13, it is necessary to get court approval of the transaction - which tends to be pretty simple. Most folk find their mortgage payment to be about as much (or even less) than the mortgage.

Bankruptcy isn't about making you suffer for your debts -- its about getting a fresh start, and helping you to get back on your feet.

Talk to a loan specialist in your area about your goals.

Bankruptcy doesn't mean no home buying for 10 years

Bankruptcy doesn't mean no home buying for 10 years

One of the most common misconceptions about filing bankruptcy is you are not allowed to buy a home for 5, 7, or even 10 years after filing bankruptcy. This just isn't true.

There are many different types of loans, and are affected by bankruptcy in different ways. For example, a FHA loan requires 1 year of completed chapter 13 payments (not even discharge) or 2 years from a Chapter 7 discharge. VA loans, conventional loans, and other loan types all have their own rules.

The other important thing to remember is that a foreclosure will also affect your loan eligibility -- and almost always will make it harder to qualify for a future loan than a bankruptcy will. Be filing for bankruptcy protection, if only to accomplish a short sale or deed-in-lieu, you can help position yourself for a future home purchase.