Can I Buy a Home if I Have a Pending Litigation?

Lenders consider a host of factors when determining whether to approve your application for a mortgage loan. They prefer working with borrowers with high credit scores, stable employment and high monthly incomes, but consider all relevant factors. If you're involved in pending litigation, they can help to determine if your involvement in a possible lawsuit can negatively impact your ability to make your monthly mortgage payments.


When you apply for a mortgage loan, you must fill out the Uniform Residential Loan Application, better known as Form 1003. To complete this form, you must provide such information as your annual salary and your estimated monthly debts. The third and fourth pages of the form, though, ask you to make several declarations. On these pages, you must admit if you have declared bankruptcy or suffered through a foreclosure in the last seven years. You must also declare whether you are party to a lawsuit. You are legally required to answer this question honestly. If you answer "yes" to it, you must provide a written explanation -- stating whether you are the defendant or the plaintiff -- on page 5 of your Form 1003.

Why It Matters

Lenders want to know whether you're participating in a lawsuit because they want to make sure that they're lending to only those people who have a high chance of making their mortgage payments on time. If you lose a lawsuit, especially if you're the one being sued, you might face a high penalty. Lenders will consider this risk when deciding whether to approve your request for a mortgage loan.

Gross Monthly Income

The key to your lender's answer might lie in your gross monthly income and what is known as your back-end debt-to-income ratio. Most lenders prefer loaning money to borrowers whose total monthly debt obligations -- including their estimated new mortgage payments -- equal no more than 36 percent of their gross monthly income. If your back-end ratio is far enough under 36 percent, your lender might be willing to overlook the possible financial penalty you'll suffer from losing a lawsuit. That's because the lender knows that you'll still have a high enough gross monthly income and low enough monthly debt load to be under that 36-percent level even if you lose your lawsuit. But if your back-end ratio is already close to this figure, lenders might balk at giving you a loan if your monthly debt load might soar because of a legal decision.

Other Factors

Your debt-to-income ratio, though, isn't the only factor that lenders consider. They'll also look at your three-digit credit score and your employment history. If you've worked at the same company or in the same industry for three years or more or if your credit score is a high 740 or better, your lender might be more willing to overlook the possible damage of a negative legal judgment. That's because borrowers with stable incomes and a history of paying their bills on time -- something that a high credit score indicates -- are less likely to default on their mortgage loans.