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I filed for a chapter 7 and  it's been less than a year since being discharged. I will be relocating to another state for work and my income is going to increase significantly. I currently have a mortgage on the home I live in now(it was not included in the bankruptcy) and have always made the monthly payments on time. Is it possible to take out a mortgage for another home at this time or will I have to wait?
asked Nov 25 in Buying a Home by Bob

1 Answer

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Hello, and thank you for writing. The only mainstream programs that allow you to finance a home one year out of bankruptcy are government-backed loans like FHA and VA. And they only allow it if there were mitigating (also called extenuating) circumstances surrounding your bankruptcy. That means only if your bankruptcy was caused by factors over which you had no control.

This article about mitigating / extenuating circumstances might help you determine if that applies to you. https://themortgagereports.com/24023/mortgage-after-bankrupcty

Note that FHA and VA lenders will not consider divorce as a mitigating circumstance. Also, you'll have to show that your problems are over and you'll be able to make your loan payments with no problem. In addition, government loans only apply to first homes, not second homes. You will apply for a mortgage on your primary residence, since you'll be living there full-time. The home you currently live in will be designated as your second home, a rental (if you plan to rent it out), or primary home for sale (if you plan to sell it).

Now, if you don't have mitigating or extenuating circumstances, or don't comply with other guidelines for government-backed mortgages, a private portfolio lender may be able to help you. There are program available to buy a home a year out of bankruptcy if your down payment is sufficient and you're willing to pay higher fees and a higher interest rate.

Please feel free to follow up if you have additional questions. Thank you.
answered Nov 26 by GinaPogol (45,150 points)
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