By Kitty J. Lin
The question of whether you can buy a house after bankruptcy is one of the most frequently asked questions. Most bankruptcy lawyers give the somewhat helpful answer that “it depends.” A lot of people think that they will be automatically denied a loan after filing bankruptcy, but that is not true. Banks look at a lot of different factors when they are deciding whether to extend credit to you. They look at your credit score, your income, how long you have been employed, how much debt you have, how big of a down payment you are putting down, and many other factors. If you have filed for bankruptcy already you will not have any debt weighing you down. If you add in the fact that you have been steadily employed making decent money and you have been saving all your money (since all your unsecured debt was discharged in your bankruptcy case), it may be possible that a bank would extend credit to you to buy a home.
Whether the bank is willing to extend credit to you also depends on the economy and the credit situation at that time. When the real estate market was on the rise people were able to buy a house a couple years after filing bankruptcy. Right after the real estate market came crashing down even people that had perfect credit were not able to obtain loans because the banks were really tight with their money. An example of this is a self-employed individual with a credit score in the 800s. She was willing to put a 50% down payment on the home. The banks refused to lend her credit because she was self-employed and therefore, according to the banks, higher risk that the business would fail and she would be unable to repay the mortgage.
Even if a bank is willing to extend credit to you to buy a home one factor you need to look at is what interest rate you will be charged. If you have filed for bankruptcy recently the interest rate may be higher. One possible way that your interest may be lower is if you have a co-signer that has a great credit to buy the home with you. You need to be sure you can afford to repay the loan with the interest included before you sign on the dotted line and incur more debt or you may need the services of a bankruptcy lawyer. You may potentially be able to refinance the home at a lower rate in the future if your house has equity and you have been steadily maintaining your credit, but that is not something you should be banking on when you are incurring the debt because it may never happen.
Bottom line: it is very possible to obtain credit to buy a house even after filing for bankruptcy depending on what the economic situation is like.