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Can I Buy A Home If I File For Bankruptcy?

March 7, 2022

Bankruptcy can help you eliminate crushing debt and get back on track once again. But many people wonder if it will derail their efforts to buy a home in the near future. Fortunately, that’s not usually the case. As long as you have all your finances in order, you can likely move forward with your plans sooner than you might think. Ready to learn more? Here’s what you need to know.

Bankruptcy Can Benefit Your Homebuying Journey

Although every situation is different, bankruptcy has the potential to benefit your home buying journey by:

Eliminating Debt

Bankruptcy eliminates all your eligible debts, like payday loans, medical bills, and credit card debt, effectively wiping the slate clean. Your debt-to-income ratio will then come into line with mortgage lenders’ expectations as a result. This will make it easier to qualify for a mortgage in your desired price range. Furthermore, eliminating debt frees up your income for mortgage payments and all the upkeep your new home will need through the years.

Improving Interest Rates

Discharging your debts through bankruptcy can also help you qualify for a mortgage with relatively low interest rates. Even a 0.5% decrease in interest can result in tens of thousands of dollars in savings over the life of your mortgage. So, it’s well worth doing all you can to lock in the best possible fixed-rate, starting with the elimination of your debts.

Above all else, bankruptcy can help restore your confidence as you land on secure financial footing once again. As your debts get discharged, your vision for the future will grow much clearer, allowing you to visualize your journey toward homeownership.

What Truly Matters When Buying a Home

Even with a clean slate on your side, you still need to show lenders that you’re willing and able to pay back your mortgage loan. Here’s a look at what they’ll expect from you during the application process.

Verifiable Income

You need to show the lenders that you have a consistent, stable income above their set threshold. You can do this by providing pay stubs, profit and loss statements, and/or tax returns. Your lender will likely want to continue receiving updated proof of income documents through closing as well.

Ability to Pay Mortgage

Your income alone is not enough to confirm that you have the ability to pay your mortgage. So, lenders often look at the full picture, including your assets, monthly expenses, and credit history. They will even go as far as looking at your employment history to ensure you’ll make good on the debt.

Down Payment Savings

You’ll also need to show the lender that you have sufficient funds saved for a down payment. Depending on your desired loan product, you’ll need anywhere from 1% to 20% of the home value saved. Many lenders will ask what you have saved, and then point you toward the mortgage products that will suit your needs best.

If you’re able to address these three areas, your bankruptcy will not hold you back from your dreams of homeownership.

Want to Talk More About Homeownership After Bankruptcy?

If you’d like to learn more about homeownership after bankruptcy, we welcome you to give us a call today at 818-855-5950. Our team at SM Law Group can provide the guidance and support you need through bankruptcy and beyond. We look forward to helping you improve your finances and achieve all your dreams. So, please feel free to give us a call at your earliest convenience.

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