Buying A Home After Bankruptcy

Added November 28, 2005 by Ilyce R. Glink

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Summary: A "no doc" loan simply means that the lender doesn't require documents from you to verify certain information, like your income, place of employment, or other information that you've put on your application. No doc loans are legitimate loans, offered by some of the biggest lenders around. Typically you'll pay a quarter of a point more in interest rate for a "no doc" loan.

Q: What is a "no doc" loan? Are they legitimate loans?

Also, I filed for bankruptcy due to a divorce more than 9 years ago. Next July, I'll be at the 10-year anniversary of the bankruptcy. At that time, the bankruptcy should fall off my credit report. Should I wait until then to buy a house or would I get the same credit if I apply now?

I have worked hard to rebuild my credit history and my credit score is currently 730.

A: Let's start at the top: A no doc loan simply means that the lender doesn't require documents from you to verify certain information, like your income, place of employment, or other information that you've put on your application. These are legitimate loans, offered by some of the biggest lenders around. They're also offered by predatory lenders, so be careful.

Typically you'll pay a quarter of a point more in interest rate for one of these loans. So if a conventional loan is being offered at 6.5 percent, you might pay 6.75 percent for a "no doc" loan.

But with a credit score of 730, you shouldn't need a "no doc" loan. You've obviously done a great job of rebuilding your financial life after your bankruptcy 9 years ago. You've got new lines of credit and are making your payments on time and, I'd guess, in full.

While your credit score may go up a bit more as your bankruptcy falls off your credit report, it clearly isn't having much of an effect on the score itself. In fact, people in the credit reporting industry tell me that after about four years, a bankruptcy no longer plays a huge role in your credit history or your credit score.

So go ahead and buy your house now. Take advantage of today's low rates. And, congratulations on keeping your financial nose clean.

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