Mortgage Basics

Will I Be Able to Get a Mortgage Loan After Declaring Bankruptcy?

Dear Experian,

I filed Chapter 7 bankruptcy almost eight years ago. Should I wait 10 years until this is off my credit report to qualify for a first time home mortgage? If I don't wait and try to get pre-qualified now, will my interest rate be affected?


Dear KRS,

While you may be able to get a mortgage loan after declaring bankruptcy, it almost certainly will be with higher interest rates and fees. Bankruptcy represents the highest level of risk for lenders, so as long as the bankruptcy is still appearing on your credit report, it will affect your ability to obtain credit.

When you file for bankruptcy, the bankruptcy listing itself will appear under the Public Record section of your credit report. As you mentioned, Chapter 7 bankruptcy remains on your report for 10 years, although the accounts included in the bankruptcy are removed after seven years.

How Bankruptcy Affects Your Ability to Apply For Credit

There is a common misconception that once your bankruptcy has been discharged, your credit report is wiped clean and you can begin applying for credit again immediately. The fact is that it can take years to rebuild your credit history. You probably will need to demonstrate good payment history on other accounts before qualifying for a mortgage loan.

Since your bankruptcy occurred eight years ago, you should have already begun rebuilding your credit history.

How to Rebuild Credit after Bankruptcy

Sometimes, a person filing bankruptcy may choose to reaffirm, or keep, one or more of their credit accounts, such as a home or car loan, and continue to make payments on the account after filing bankruptcy.

Continued use of the account and making all payments on time can be very beneficial in beginning to rebuild credit history once the bankruptcy has been discharged.

However, there are many instances where the person may not be able to keep any of their accounts. If you are
starting from scratch after filing bankruptcy, with no open, positive accounts, you may need to start small and slowly reestablish your credit over time.

Although you may not qualify for traditional credit right away, there are other options, such as applying for a secured credit card with your bank or asking a friend or family to cosign for you.

As time passes and you show good credit management on new accounts, lenders may be more willing to work with you, and you may be able to qualify for a mortgage loan. However, as long as there is a bankruptcy listed on your credit report, lenders will likely try to compensate for the higher risk by offering a loan with higher than normal interest rates and fees.

Deciding Whether to Apply for a Home Loan after Bankruptcy

It's probably not a good idea for someone to take on a major debt like a mortgage loan soon after their bankruptcy is completed, but your financial situation eight years later may be very different.

If you are on solid ground financially and you have established a positive credit history since your bankruptcy, there is no harm in trying to pre-qualify now rather than waiting another two years. Doing so will not only give you an idea of how much house you will be able to purchase, it will also allow you to see what kind of interest rate you will be offered.

If, once you pre-qualify, you are not satisfied with the terms that are available to you now, you can always opt to wait two more years until the bankruptcy is completely removed and then apply again.

In the meantime, you can continue saving money for a down payment and working toward building a stronger credit history.

Thanks for asking,
The "Ask Experian" Team