New Home Mortgage Loans Useful for Recovering from Bankruptcy

By Karen Lawson
Mortgage Credit Problems Columnist

When your back is against the wall, and creditors are hounding you day and night, filing bankruptcy may provide a legal way to reduce or eliminate debt. But while bankruptcy may offer a "fresh start" in terms of debt, it can appear on your credit report for up to ten years. What are the challenges you'll face after bankruptcy, and how can buying a home and getting a mortgage loan help restore your financial standing?

Mortgage Loans Available Sooner than You Think

Depending on your financial situation, mortgage lenders may be able to provide home loans to qualified borrowers after their bankruptcy has been discharged for two years. FHA even allows you to get a mortgage 12 months after bankruptcy in special situations. Of course, you'll need to meet underwriting requirements and demonstrate a good credit history since filing bankruptcy. Buying a home can help you restore your credit rating, but it will take time.

• Rebuild credit by making timely payments: Making your mortgage payments on time will help you increase your credit score. Paying rent can do the same, but creditors view home ownership as a sign of greater stability.
• Potential for growing assets: Depending on real estate market trends, buying a home may provide the benefit of growing home equity if your home value increases. Mortgage lenders offer home equity lines of credit that can provide a low-cost source of funds for emergencies. This can help you avoid relying on expensive credit offered to consumers after they've filed bankruptcy.
• Owning a home provides incentive for staying on track: Homeowners take pride in ownership, and may be more inclined to protect their investment by maintaining good credit. You're less likely to risk losing your home by springing for costly impulse purchases. Once you've been through bankruptcy, protecting your credit is more important than ever.
• Exchanging retail therapy for home improvement projects: Your home requires upkeep, and you'll soon identify maintenance and improvements that you want to do. Home improvements can add value to your home, and they'll keep you busy. Channel your shopping habit into choosing new colors for the living room instead of wandering through the mall.

Life after bankruptcy can be challenging, but establishing a financial plan for buying a home and getting a mortgage loan can help you overcome problems caused by bankruptcy.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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