Best Advice For Buying A Home After Bankruptcy

Buying a home after bankruptcy presents a number of challenges.  Declaring bankruptcy severely damages your credit and significantly lowers your credit score.  This effectively destroys your ability to purchase a home or any other large item buying a home after bankruptcyfor some time.  In today’s economic climate, getting a home loan can be difficult, but the damage bankruptcy does to a person’s credit is temporary and there are a number of things you can do to improve your chances of finding a lender and buying the home of your dreams after bankruptcy.

The best thing you can do is give yourself time.  Most lenders will not even consider issuing you a loan until at least two years after your bankruptcy has been discharged.  On the bright side, two years isn’t that long of a wait and there are many things you can (and should) do during that time to improve your credit and increase your attractiveness to lenders.  The very first thing you should do is get a copy of your credit score.  This will help you more fully understand where you are financially and allow you to spot any mistakes that might be dragging down your credit score unnecessarily.  If you do spot any mistakes, dispute them with the credit agency that issued your score.

After you’ve gotten a handle on where you stand, you can begin working to improve your credit score; with proper planning and discipline your credit rating will improve over time.  Keep in mind that the overall goal here is to prove to lenders that you can be trusted to pay back money that you have borrowed.  Improving your credit score is a way to accomplish this.  While it isn’t necessarily advisable to take out additional credit, obtaining a secured credit card or making regular payments on an installment loan are two methods people use to improve their credit score.

A secured credit card is basically a card whose credit limit is dependent on the amount of money you have deposited with the issuing bank and your previous credit history.  With this type of card, a savings account is used as collateral on the credit available on the card.  As you’re rebuilding your credit, you should only use a fraction of the credit available to you.  In other words, don’t max out all of your cards.  Also, make sure your payments are on time and over the minimum amount required by your bank.  Don’t bounce any checks either as these can also negatively impact your credit score.  Less obviously, try to stay at the same job for at least two years and maintain your current income level.  Lenders like to see stability when they’re evaluating who they’ll give a loan to.   Finally, make a commitment to growing your savings account.  Putting money in the bank will lower your debt-to-income ratio and allow for a larger down payment.  This is important since the larger your down payment is, the more likely lenders will be to talk to you.  A larger down payment can also lower your interest rate.

Once your credit rating is in better shape and you’re ready to get serious about looking for a home, consider getting a loan from the Federal Housing Administration (FHA).  FHA loans are often more accommodating for those who have a bankruptcy in their history than loans issued by standard lending institutions.  Additionally, be ready to pay a higher interest rate.  A past bankruptcy often means a higher interest rate; but a larger down payment can lower it for you.

Finally, make sure to purchase only what you can afford.  Mortgage calculators can help you figure out what sort of down payment you can expect.  Best of luck in your home search; if you’d like to check out communities you’re interested in -  have a look at our MoveMap, it makes finding the neighborhood that’s right for you easy and fun!

Helpful Tips on Buying A Home With Bad Credit

The home buying process can be complex and time consuming.  Having bad credit can make things even more challenging.  However, poor credit doesn’t necessarily preclude you from owning a home.  In our current economic climate loans help buying a home with a poor credit scoreare subject to a good deal of scrutiny before approval and the options available to you aren’t great.  Since the real estate bubble burst a few years ago, lending institutions have tended to be far more conservative, but it is still possible to buy a home with bad credit.

Most real estate and personal finance professionals will tell you that if you have sub-par credit, the best thing you can do is simply put off buying a house for a few years and spend that time improving your credit score.  This can save you a lot of money in the long run by enabling you to qualify for a low interest rate on your home loan.  Before you decide to purchase a house, make sure to ask yourself if buying is really a good idea right now.  Taking on a mortgage with bad credit will create an extra burden and could be the wrong financial move.

That said, if you have less than stellar credit and still want to buy a home, the very first thing you should do is get a copy of your FICO credit score.  You need to know where you stand before you begin talking to lenders and the difference of a few points can be important, especially if you’re on the lower end of the scale.  While reviewing your credit score, you might also spot errors.  If you do, you can report them to the credit agency that issued the report in order to improve your score.  After you’ve reviewed your credit score and decided that you’re going to get serious, there are several options available to you.

A route that many people go is to apply for Federal Housing Administration loan insurance.  By assuming the risk if you default, the FHA helps people qualify for a loan and can greatly reduce the down payment, which can be as low as 3.5% of the purchase price.  Many of the closing costs/fees can be rolled into the loan as well.  In order to obtain FHA loan insurance you must show current financial responsibility, but past bankruptcies or loan defaults won’t necessarily disqualify you.

Other options people sometimes use are local government home buying programs and obtaining a co-signer on the loan. Your local housing and community development office will have information on local government programs, if they exist.  Alternatively, you might be able to get a close family member to co-sign on your loan.  They can help you get approved by assuming the financial risk if you default.  Finally, you might be able to find a lender that will give you a shot, but be careful – you’re bound to pay a higher interest rate and commit to a much larger down payment.  The interest rate on subprime loans can be exorbitant, so signing up for one might leave you worse off than you were before.  Exercise extreme caution when looking for a subprime loan.

In conclusion, waiting it out a few years and improving your credit score is the most advisable route to go by most estimates.  If you do want to buy with less than stellar credit you can look into FHA loan insurance or try to find someone to co-sign your loan, but be wary of obtaining a sub-prime mortgage.  If you’d like to check out communities you’re interested in moving to, have a look at our MoveMap, which makes finding a new place to live a breeze!