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Can I buy a house after a Bankruptcy?

Posted by Brian Hallaq | Aug 04, 2022 | 0 Comments

This is probably the #1 question that I get at some point during my representation of a client.  Here is the short answer:  YES.  You can buy a home after filing for Bankruptcy.  In fact, you can both sell or purchase property while you are in Bankruptcy (with prior court approval), so by definition you can definitely buy a home AFTER filing for Bankruptcy.

So that's the good news, but as you probably suspected there is some bad news.  In order to qualify for a home loan you need to make yourself look like a good credit risk to a mortgage company.  Most people tunnel vision on the subject of their FICO score, and while that is a factor, it is only one factor (and not the most important one) that gets looked at by a mortgage company.

Owing a home is part of the American dream and it is not something that you should deny yourself just because you had to file for Bankruptcy.  The truth is that most mortgage lenders will give you a serious look after 18 months from your Bankruptcy discharge (sometimes earlier).

But you obviously have to show that lender that you are worth taking a risk on.  The very first thing they are going to be interested in is your income.  After all, that's how you'll make your monthly mortgage payment.  With respect to your income they want to see that you have a good paying job that is consistent (don't change employers constantly) and easy to document.  That means that you really need to file your tax returns on time and keep those records.  Also, if you work in a job that is primarily cash (like a nail salon, or tips as a bar tender) you need to keep a record of that income to show that you can make your monthly mortgage payment. 

Typically, lenders will want your monthly mortgage payment to be no more than 50% of your take home pay.  So, for example, if you take home $2,000 per month, your monthly mortgage payment shouldn't be more than $1,000 per month.  This is where you have to do some math to see if you will qualify for a home loan.

Go to Google and type in “mortgage payment calculator”.  Don't click on any ads or give them any personal information…just look for the simple mortgage calculator that pops up.  Type in the “mortgage amount” for the price of the house you are looking at and see what the monthly payment on a 30-year mortgage would be.  If that amount is less than 50% of your take home income, then you are probably good to go.  But if the payment is more than 50% of your take home pay, you need to reduce the amount that you would be borrowing. 

Next, you need to make sure that you are not doing damage to your credit history, such as by having unnecessary loans, late pays, or too much post-Bankruptcy debt.  Remember that your ongoing expenses will be calculated by the mortgage company to see if you can afford the loan, so having that time share payment, or extra motorcycle payment each month does not help your cause.  Also having some money in savings is helpful for both a down payment, closing costs, as well as to show that you have good discipline with your monthly budget.

Finally, you need to have some accounts in your name, but that does not necessarily mean that you need to have credit cards.  Some people put their ongoing expenses in somebody else's name after a Bankruptcy, but that hides the fact that you are making on time payments each month, so put your cell phone bill, light bill, cable bill, and other necessities in your name to show that you are making on time payments.  Also, it doesn't hurt to have a bank account at a bank that offers home mortgages (usually some of the larger banks) as it will be easier for them to verify that you are a good customer despite the recent Bankruptcy. 

Remember, the point of a Bankruptcy is to get a “fresh start” and part of that fresh start is to enjoy the benefits of home ownership, so make a goal, stick to it, and you will soon find yourself an owner rather than a renter.

About the Author

Brian Hallaq

My name is Brian and I have been a practicing attorney in Bankruptcy for over 20 years helping thousands of clients.  I have worked for the Chief Judge of the United States Bankruptcy Court for the Western District of Washington, as well as several small boutique Bankruptcy law firms handling Bankruptcy cases in Washington State and the State of California.  I have litigated for and against major banks, and I have recovered millions of dollars on behalf of clients in my career.

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