First of all:
Be sure to speak to a bankruptcy attorney AS WELL AS a trusted mortgage lender! While both professionals will be educated in their fields of expertise, you will need both perspectives to get an accurate view of how to accomplish your home buying goals!
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While I am not a mortgage lender, I will tell you what I've heard from the grapevine! Please trust, but verify!
If you file bankruptcy, you can qualify for a mortgage 2 years after it is finalized... IF... you establish 3 or 4 positive trade lines of credit during that two year window of time.
Here are some ideas on what that means:
1. Get 3 or 4 security deposit credit cards. Capital One has a good one that takes any credit type. Here's how it works: You put down a deposit ($200 for example) and that's exactly what your credit limit is. NEVER charge more than 10% of your credit limit, in this example... $20 dollars. ALWAYS pay it off on time!
2. You can also do this same thing with a certificate of deposit. Most people don't know you can borrow against those as collateral from your bank. Apply the same concept... don't borrow more than 10% of the CD's value.
Bankruptcies do not wipe away government debts like student loans or tax liens. Nor does it wipe away legal judgements, like lawsuits filed against you or back child support.
Now, here is my most controversial response:
I think going to a bank for a home loan is a very dumb idea, even if you had an 850 credit score!
Why?
Well, there are many reasons:
1) Banks make you jump through hoops, red tape, and require a DNA sample.
2) If you get a mortgage in your name, the banks have sophisticated technology to report your debt to the credit bureaus. Also, you are showing to the credit bureaus you have a big obligation and a huge responsibility, so they shy away from lending you even more money.
3) If you are ever late on your payment, you will be reported and it will drop your credit score. If that happens, you have to wait 12 months or longer to refinance or buy another house.
4) Almost always, always, always... you have to sell the home you buy before you can buy another one.
5) If you get sick of the house or want to move, you have the stress and strain of listing the home, paying commissions, waiting for it to sell, and straining to make the payment every month when you just want to move on with your life.
I know, I know... when you buy a house... it will be the last house you will ever buy! You are going to retire and live in that house forever! Yadda, yadda, yadda. But statisics show... you will sell the house you buy in 4 to 7 years and buy another one!
So, what is my point and what is the solution?
If you get financed through a private seller, where the private seller acts like the bank:
1) There is no red tape! They don't ask for your credit report in most cases!
2) The private seller doesn't tell Transunion, Equifax and Experian (top 3 credit bureaus) you have a mortgage in your name, so you can buy other goodies you normally wouldn't be able to buy because you don't show an "over leverage" of debt.
3) If you are late on your payment, the seller won't appreciate that... but it won't be reported to the credit bureau as a slow or late pay - which will hurt you badly if you have a bank loan.
4) If you get a loan through a private seller, you don't have to wait to buy a new home. You can lease that property out and since the credit bureaus show no signs of you owning anything on your credit report, you can qualify for a new mortgage and buy something else, or maybe an investment property.
5) If you decided to move and didn't want to lease, you would still have to sell the home. But if it doesn't sell, you can negotiate a deed in lieu of foreclosure with the original seller which will not effect your credit. Basically, the seller gets the house back without having to foreclose on you.
Hope this helps, and good luck with your home buying goals!
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