You can regain credit to buy a home

Might your family be shunning a federal tax credit of up to $8,000 to buy a home because of a prior bankruptcy or foreclosure?

This may not always be necessary. Meanwhile, the first-time homebuyer tax credit, coupled with a new tax credit of up to $6,500 for existing homeowners, has been renewed through next April 30.

You'd be surprised at how soon you might qualify for a mortgage again - despite credit-killing events.

It's true that a bankruptcy may remain on your credit report for up to 10 years, in many cases.

But a lender will give you a mortgage again four years after the date of filing of Chapter 7, 11 or 12 bankrutpcy, reports Dale Robyn Siegel, in her book, "The New Rules for Mortgages (Alpha)."

In some cases, with extenuating circumstances, you may even qualify after two years!

If you must declare bankruptcy, she advises, be sure to copy your discharge letter and immediately send it to each of these three major credit bureaus:

• Experian: 888-397-3742; experian .com

• Trans Union: 800-916-8800; trans- union.com

• Equifax: 800-685-1111; equifax.com

Include a letter requesting that all the affected items on your credit report show the balance as zero, and that the debt was included in the bankruptcy.

Also, ask for a copy of the updated report. It's possible you may have to repeat this process until things get totally corrected, she says. Simultaneously, check for erroneous personal information on your credit report, and request that old inquiries be eliminated.

Immediately start creating a positive credit record — ideally by maintaining at least four forms of credit. You still should be able to obtain loans. For example, you may be able to obtain a joint credit card, a high-interest car loan, or keep some cards open outside of your bankruptcy, she says. A secured credit card is another option.

The key: Pay all bills on time, and confirm that your lenders are reporting your on-time payments to the credit bureaus.

If you must obtain a secured credit card, shop around. You needn't pay an application fee, for example. There are much better deals out there. Credit unions might be a lower-cost option for credit cards.

You can get a Fannie Mae-issued mortgage five years after a foreclosure was completed by discharge or dismissal, according to Siegel.

Some lenders even will offer you a mortgage right after a foreclosure. But within seven years of a foreclosure, expect the terms of the mortgage you get to be limited.

If you fall into foreclosure, but get out before the home is sold, Siegel says you might qualify for a mortgage after just two years. Provide your lender with a deed in lieu of foreclosure, in which you give the home back to the bank, and you could qualify for a mortgage after four years. But be sure to check with an attorney beforehand.

In some states, the lender still may come after you for a "deficiency judgment" if he or she can't get enough money when the house finally is sold.

You'll generally need to pay off most judgments, collection accounts and liens prior to closing on a new mortgage.

She suggests that you contact each creditor directly and ask to settle the account. Start by offering 50 percent and top out at 70 percent. Be sure to get a letter confirming the settlement and the fact that you paid. Immediately send copies to each of the three credit bureaus.

Don't rely on a debt collector or creditor to notify the credit bureaus.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com.