We spend most of our practice trying to help people eliminate debt, not take on more debt. So the purpose of this post is not to encourage taking on more debt, but to give hope and knowledge about how credit actually works.
If you have a negative credit history because of bankruptcy, foreclosure, credit card charge-offs, etc., you may be wondering if/when you could buy a home some day. First, it’s important to understand that credit scores and blemishes are generally not a matter of law. They are a measurement, open to interpretation by the lender. Lenders can generally set their own lending guidelines as to what they will and will not accept in a borrower.
Some lenders have very strict policies and require a nearly immaculate credit report to get a loan. Others, not so much. It’s true that many of the big banks that make home loans follow federal guidelines that require you wait a certain amount of years after a major incident to get another loan. But there are also other banks, typically smaller local banks that may offer what’s called a “portfolio loan” or “in-house loan”.
Essentially, they make the loan themselves out of the bank’s money instead of selling it as a securitized loan to bigger institutional investors. Since the bank is lending their own money, they make the rules. They can and do make loans to people without good credit, even recent foreclosures. But they may have other conditions. For example, they may want to see you put more money down on the house you’re buying or something else.
The point is, just because you filed bankruptcy, had a foreclosure, defaulted on a credit card, etc., it doesn’t necessarily mean you can’t get a home loan. You just may have to look at different options.
Of course, any decision to take on more debt should not be taken lightly.