About 1.5 years ago I had my bankruptcy discharged. Now, the lease on my house is up and I have about $7k for a down payment on a small starter house (they asking $55k)

However the 2 places I have spoken with for pre-approval wont give me the time of day after pulling my report. I really would rather not sign a new lease at the current place I live for another year.

Is there anything I can look into?

  • Have you tried to find a seller who is willing to offer you financing? $7K on $55K isn't even 20% down, but if the seller is motivated and you make a decent offer, e.g. a higher rate, say 5 or 6%, and faster payback, perhaps a 10 year note, he might accept. – JTP - Apologise to Monica Feb 23 '13 at 15:06
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    The short answer is no. – C. Ross Feb 23 '13 at 16:18
  • The seller already dropped their price a bit for me in hopes of selling fast, the issue I guess is the laws relating to home loans within the first 2 years of discharge. So without a much higher down payment I guess this is a losing battle? – Hydra IO Feb 24 '13 at 4:47
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    It's not laws, per se; it's that bankruptcy is a 7-year kiss of death on your credit report, and the more recent your filing, the bigger the impact. It's pretty much the only thing that can push your credit score below a 400. And yes, no bank will give you the time of day, much less a 30-year loan, with something like that on your record. You are actually lucky to get a rental with a bankruptcy on your record. Yes, you have to live somewhere, but the landlord's also expecting his money, and a bankruptcy proves you've already skipped out on someone else (probably many others). – KeithS Feb 26 '13 at 23:47
  • If I were you, I'd stick with renting rather than owning until you've had time to prove that you're financially trustworthy. It is NOT always a financially inferior strategy, nor does it necessarily give you inferior living space. And "starter homes" are a scam, pure and simple. – keshlam Aug 28 '14 at 5:15

Your only option might be finding a seller-financed property with a motivated seller who is willing to take the risk of loaning you money. However, be prepared to pay a hefty rate on that loan if you can even pull it off.

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There are a few loan programs that grant exceptions to bankruptcy requirements in the event of extenuating circumstances that can be proven to be outside of your control (i.e. massive medical bills that you used bankruptcy to settle, etc.) however, in order to make the case for this exemption, you would need to make a strong case for your solvency, shown the ability to re-establish your credit reputation since the discharge of your bankruptcy, and would almost certainly have to go through a bank that offers manual underwriting.

Additionally, if you are Native American, the HUD-184 program is a great option for your situation as it allows for a wide latitude in terms of underwriter discretion and is always manually underwritten as there is no automated underwriting system developed for the loan program. There are several great lenders that offer nationwide financing (as long as you're in a HUD-184 eligible area) and would be a great potential solution if you meet the qualifying parameter of being Native American.

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