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Buy a house after bankruptcy

February 27, 2019

“Can I buy a house after bankruptcy?”  That’s an often-asked question, and the answer depends a lot on who’s asking it could be “yes” but maybe “no”.  The thing is that everyone’s situation is different before, during and after a bankruptcy filing.

The reason I am writing this blog is to educate, so that you know what some of the challenges really are.  Another answer to the question might have simply been “yes, you can buy a house after bankruptcy”.  Let’s face it you can buy anything you can afford, and at any time you want, provided it is lawful to do so, and it certainly isn’t illegal to buy a house, whether you have been bankrupt or not.

Unfortunately, we use the expression “buy a house” not to mean purchasing something but rather borrowing money to purchase it.  That may sound like semantics, but it really isn’t, if you have a mortgage you haven’t bought your house until the mortgage is fully paid off.  Until then you are effectively renting to own your house from the bank (mortgagee).

Of course, if you won the lottery and wanted to buy a house there would be no problem at all.  Mortgagees come in all sizes and shapes, and banks may not lend mortgage money to former bankrupt’s who went bankrupt on delinquent mortgage.  But a high-risk private lender might, albeit at a much higher than market interest rate.

Remember, the larger the down-payment you can produce the more it mitigates the risk of the mortgagee and the more likely they are to lend to you.  In any event, for a variety of reasons, it is unlikely that you could be discharged one day and purchase a house the next.  Property of the bankrupt vests in the trustee, and that includes money.  The vesting of property continues until the trustee is discharged, which may be quite some time after the bankrupt’s discharge.

Typically, before being eligible for a new mortgage following a bankruptcy discharge, the former bankrupt needs to be two years from the date of discharge and have at least two bank issued credit products, in good standing, on their credit report.  Need more information?   Just call for a free review 519-646-2222