Individuals interested in purchasing their own home strive to maintain a positive credit rating. This is achieved by paying bills on time, having a low debt to income ratio, and so forth. Nevertheless, several lenders are eager to offer home mortgages to individuals with bad credit. These mortgages have a higher interest rate, which increases the monthly payment. Although a mortgage may be attained with bad credit, the course of action is slightly different for individuals who have filed bankruptcy.



Two Types of Bankruptcies

There are two types of bankruptcies. A chapter 7 bankruptcy involves complete liquidation in which debts do not have to be re-paid. On the other hand, a chapter 13 bankruptcy entails repaying a portion of the debt over a fixed period. For the most part, a bankruptcy should be the last alternative, and not a quick fix to credit problems. Many explanations cause a person to file bankruptcy. These include excess credit card and consumer debt, high medical bills, etc. Lenders determine credit worthiness based on information provided in credit reports. A bankruptcy is a negative remark that remains on credit reports for ten years. Throughout this 10-year period, individuals who filed bankruptcy can expect to pay higher interest rates on automobile loans, mortgages, and credit cards.

How Long Should You Wait Before Buying a Home

Obtaining a home after filing for bankruptcy is feasible; nonetheless, individuals who have filed must adhere to specific stipulations. To obtain a mortgage after filing a chapter 7 or chapter 13, you must wait at least two years after the bankruptcy is discharged. Moreover, individuals who have had a bankruptcy case dismissed must also wait two years before applying for a mortgage. During this 24-month period, it is recommended that person's re-establish their credit history. If possible, acquire a line of credit from at least three to four creditors. Immediately following a bankruptcy, a secured credit card, or a high interest credit card is your best option. However, once a good payment history is established with these creditors, you may be able to obtain credit card offers with reasonable rates.