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Improving your chances for a mortgage following bankruptcy

If you've filed for bankruptcy, you may think that your dreams of buying a home at some point in the future are dead. That's not true at all. With some careful planning and good money management, you can buy a home -- perhaps sooner than you realize

Bankruptcies can stay on your credit report for as long as a decade. However, you can qualify for a mortgage sooner than that. The first step is to begin to rebuild your credit. Recently, we discussed financial tools such as secured credit cards and loans that help you show potential creditors, including mortgage providers, that you're not likely to default on your loan.

How long you need to wait to qualify for a mortgage depends on the type of bankruptcy you had. There's usually a four-year waiting period for those who have filed for Chapter 7. That can be cut in half in some cases.

If you've filed for Chapter 13, the waiting period (two or four years) depends on whether the bankruptcy is discharged or dismissed when the repayment period of three to five years is completed.

In addition to sticking to your repayment plan if you file Chapter 13 and rebuilding your credit, you want to improve your debt-to-income ratio. That ratio is key for mortgage lenders. It should be no higher than 40 percent at most. You can get there by paying down any additional debts not covered by your bankruptcy and not creating new debt.

Build up your savings. This may be a slow, incremental process. However, remember that you're going to need a downpayment for that home in addition to a mortgage.

Keep an eye on your credit reports and your credit score. You want to ensure that everything that was supposed to come off of your reports has, that nothing's there in error and that the steps you're taking to rebuild your credit are being reflected.

Your Tennessee bankruptcy attorney can provide valuable guidance as you go through the bankruptcy process. He or she can also recommend resources to help you rebuild your credit and your life after bankruptcy.

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