If you are trying to avoid bankruptcy because you think it will prevent you from ever being able to buy a home again, the good news is that this is not necessarily the case. While there will be some hurdles in your way to purchasing a home after bankruptcy, it may still be done, which means you should still file for bankruptcy if it is in your best financial interest to do so.
The most significant challenge for potential homebuyers, whether or not they have filed for bankruptcy in the past, is the amount of debt they have. Lenders closely analyze the finances of mortgage applicants to determine what their debt-to-income ratio looks like. If what you are paying is larger than your income, you’re going to have a problem paying off your debts, which means you will have a lower credit score and poor chances of securing a home loan. The process of rebuilding credit to the point where you are able to secure a loan could take many years, unless you file for Chapter 7 bankruptcy.
Filing for bankruptcy will show up on your credit report and will temporarily lower your score significantly. But once you begin responsible use of credit again, you can begin to build your credit back up. Because you won’t be able to file for bankruptcy for at least another eight years after your initial filing, some creditors may actually consider you a good risk to take.
The amount of time it takes to build your credit back to the point where you’ll be able to secure a home loan may vary depending on your situation, but experts say a good rule of thumb is to expect it to take between 18 to 24 months after your debts are discharged. Of course, it also depends on what you want to pay for your mortgage. The higher the credit score you have, the lower the interest rate you can get. Thus, by taking more time to rebuild your credit, you may eventually be able to secure a lower interest rate when you do decide to apply for a home loan.
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