I have many clients in Minnesota that ask about buying a house after filing for bankruptcy.
Fannie Mae, and Freddie Mac, the government agencies that ultimately buy most mortgages, ignore a bankruptcy filing about 2 years after you file the case.
Most lenders make their loans with the intent to sell them to Fannie Mae and Freddie Mac, so if these two will buy the loan, then the loan is safe from the lender’s point of view.
In fact, bankruptcy might be the fastest way to qualify for a mortgage for some people.
Why is this?
This is because lenders require a low debt to income ratio.
- The debt to income ratio measures how much of your income goes to paying down debts
The lenders know that if you are already spending a lot of your income on debt payments, you probably won’t be able to support a mortgage payment too.
- Bankruptcy will discharge many of your debts instantly, but generally allows you to keep your income
- Your debts go away, but your income stays the same, so your debt to income ratio improves dramatically over night
This makes you a much better borrower in the eyes of the bank.
Can’t get a mortgage? Bankruptcy could help
If you have dischargeable debts and can’t get approved for a mortgage, then maybe you should file bankruptcy.
This will enable you to save money for two years to use as a down payment.
Then get the mortgage once Fannie Mae and Freddie Mac will ignore the bankruptcy.
Can you get a mortgage quicker?
Filing for bankruptcy is probably a much faster way to buy a house than paying down credit cards at 30% interest. It will also leave you much more money in the long run.
You can refinance a mortgage the day after you get your bankruptcy discharge, which can be as fast as 3 months from filing the case in a Chapter 7 bankruptcy.
In a Chapter 13 bankruptcy, which can take 5 years, you can refinance before the end of the bankruptcy.
You just have to get permission from your trustee and find a lender willing to work with you.
Conclusion
If you’re struggling financially but worrying you might have problems buying a house after filing for bankruptcy, then we can help.
Simply Contact Us at 612.824.4357 and tell us what you need us to do.
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