A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to OBTAIN A MORTGAGE in as early as 2 YEARS AFTER THE BANKRUPTCY DISCHARGE DATE utilizing an FHA Mortgage. 

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery — what you’ve done since your filing. It's critical that you have paid your bills on time (those that report to credit bureaus) since the bankruptcy discharge.  It won’t happen overnight, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

Give explanations. No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and they will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”  Most lenders will require you to write a letter of explanation concerning why you had to file bankruptcy.

If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. Most lenders will require you to provide a copy of your bankruptcy filing and the discharge document too.  It's best to have that paperwork right up front when applying for your home loan. 

If you have recently had a bankrupcty discharge, demonstrate good money habits now. Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around right away, but your credit score will improve over time.  It's also important to remember that if you included your current car loans in your bankruptcy, and you reaffirmed those loans directly with the bank that provided the car loan after your bankruptcy discharge date ,  in most cases, those loans are not reporting to credit bureaus any longer.  You might think because you are paying your car payment on time each month that you are re-establishing your credit rating, but YOU ARE NOT!   

Dispute any credit report errors. There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing (this can be done online too) what information you believe to be inaccurate and request the information be deleted or corrected.

Save your money. Lenders may be more willing to loan you money if you’ve saved up an acceptable amount of money for a down payment.  For FHA financing, you will need 3.5% of your purchase price as a down payment.  You will often also need some additional money saved to cover closing costs, depending on how your offer is written.  Most lenders will also want to see that you have some money left over for what is called a 2 month PITI reserve.  What this means is that if your mortgage payment is going to be $1,000 per month, the lender will want to see that you have $2,000 left over after closing in either a savings account, checking account, retirement account (i.e. 401K), or cash value in a life insurance policy.  There are some exceptions to this rule.      

SAVE MORE, SPEND LESS.  Live within your means.  In these economic times, now more than ever it's important to be smart with our money.  With so many families losing their homes because of job losses, or consumer debt that is out of control, it's essential to be realistic about how much money you spend.  Is it a want or a need?  Is it really that important to keep up with the Jones's?  In case you didn't know, the Jones's are broke.  They leveraged themselves so that they could drive the new Mercedes, have all the toys, and in the process are now in massive debt (in most cases).  They look good on the outside, but they are slowly sinking financially.  Do you really need a 4,000 square foot home, or will a 2,200 square foot home be adequate?  Americans are getting re-acquainted with what really matters, quality of life, less stress, financial security, less debt, more savings.