Buying with a Record of Bankruptcy

Q: What are my possibilities of buying a home, being a first-time buyer with a bankruptcy on my credit report? I am planning to retire from my job soon and would like to know my options because I plan on cashing out on my pension. -- Howard

A: A bankruptcy filing stays on your credit record for 10 years. Lenders are very sensitive to your credit history, particularly so about payment delinquencies and bankruptcy filings. But if your bankruptcy was filed a long time ago and you have an excellent payment history since then, you should talk to the lender and argue your case, supporting it with documentation that you are a low risk to them.

If you don't have luck with that route, there are two other ways to get a loan. The first is by putting down a huge down payment, say 50 percent of the house sale price. Lenders look upon it favorably when the borrower invests a large sum of their money in a piece of property.

The other way is to take out a subprime loan, which comes with higher interest rates and more points. Points essentially are interests charged up front by the lender for providing you the loan. One point is 1 percent of the amount of loan. But if you are willing to pay more each month, you can find a lender willing to take the risk that you might default.

Borrowing with Less than Perfect Credit

Q: What could lenders offer a person with a B credit rating and $10,000 down on a $125,000 home? My annual income is $55,000. Any suggestions appreciated. -- Shondra

A: At today's interest rates and your income, you would be well qualified for a loan of $115,000. As a rule, most borrowers are expected to spend no more than 28 percent to 33 percent of their monthly income on housing, depending on their other financial obligations. Because you said you have a B credit rating, a lender might look at you less favorably and could ask you to put down more than the 8 percent that you plan to use as a down payment. Or the lender might charge you more points for your loan. Points are fees lenders charge up front to lend you money. One point equals 1 percent of the amount you borrow.

Lenders look at more than just your credit rating, however. They also consider your recent payment history, your cash reserves and other investments. Ask a lender what you can expect. For an idea of how much you can qualify for and your monthly mortgage payment, use the mortgage calculator on this page.

--Francis Solomon is a former real estate investor, landlord, property manager and REALTOR®.