Buying a Home After Bankruptcy

Reader Question: After a failed business, my husband and I declared bankruptcy in 2005. We have about 30,000 in equity on hour house. Would buying something smaller and less expensive be wise or even possible with this on our credit history?

It seems there may be a few more questions to ask of yourself before making a decision. First of all, can you afford your current mortgage? If the answer to this is "no," then you may want to explore purchasing a smaller, less expensive home. But in doing so, you may want to consider the following questions:

What is your current mortgage rate -vs- the current rates? Would refinancing your current mortgage and perhaps consolidating debt help your financial situation? Also, what type of real estate market are you in? Do you realistically have $30,000 worth of equity? And, how long are homes on the market before being sold?

If the answers point you toward selling your home or even refinancing, the best place to start is knowing what your credit report looks like and what kind of credit score you have. Lenders base their rates on credit scores. The minimum score for the best rates has changed drastically over the past several months. You may be able to qualify for a new mortgage or refinance, but may not get the best rate -- the ones you see advertised in the paper and in commercials.

The next step would be to contact a lender or lenders to discuss if a new mortgage or refinance is even possible with your past bankruptcy. Lending Tree gives you the ability to submit your information to up to 4 lenders at once. Check out the mortgage quotes section of our website for more on this.

Based on your credit, income and debt ratio, a good lender will be able to tell you how much you qualify for and at what rate. It is at that point you should be able to make an educated and informed decision about how this new housing picture will benefit you and if it makes sense to sell or refinance.