Buying a Home After Bankruptcy

Sometimes no matter how hard you work and how careful you are in the financial aspect of your life you can still have issues and problems comecan you buy a house after filing for bankruptcy up.  The American dream can sometimes seem to be at an impossible distance in certain situations whether it was a divorce, job loss or the market tanked.  Bankruptcy is not fun for anyone but there is some light at the end of the tunnel.  There is a good probability that you will be able to pick up the pieces and recapture what has been lost so quickly.  Buying a house after filing bankruptcy is possible and sometimes can be a viable option much sooner than you think.

The biggest change happened when a new policy was approved from the Federal Housing Administration announced (August 15th 2013) that some could get approved with an FHA backed mortgage as soon as one year after the bankruptcy.  This is of course the best-case scenario but there are other possibilities to get approved for a mortgage in a timely manner.  Other things to keep in mind are the different situations as some may have just a bankruptcy and others could have had short sales or other foreclosures on their plate as well.

When you are interested in getting back to the world of homeownership it is important to understand a minimal timeframe of one year is required from the date of bankruptcy discharge OR if you had a short sale it would be from that closing date, same goes for a foreclosure. Other rules for this particular situation would be that your bankruptcy and the loss of your home has to fall under what FHA calls an “economic event”.  Some of these rules include loosing your income for at least six months, 20% job loss or a major pay reduction.  This may nix you out of this avenue but even without this loophole a traditional turnaround time to purchase a home could be as soon as 2 years.

After going through such a big financial ordeal like bankruptcy two years may be just enough time for you to get back on your feet.  At one point I have heard roomers that it can take up to seven years before you could qualify for a mortgage, but in more recent days it has taken some much less time.  The key things to keep in mind are as follows

  • Try and rebuild your credit or just have no credit (as opposed to bad credit). This would include making your payments on time, set up automatic payments and regulate your credit report.  This would be similar with no credit score except you will have to pay cash for everything and have no credit cards or credit lines of any kind.

  • Save up for a down payment. Believe it or not this really is being required for almost everyone, not just the people with a foreclosure on his or her record.  The idea is at least 20% should be saved for a down payment but when in doubt, the more you save the better chance you have of the lender qualifying you for the house.  Showing the lender that you are serious on doing right by the house note and have a good financial means to back it makes the chances much higher when being reviewed by the underwriter.

  • Eliminate debt and keep it away.  When going about these steps don’t acquire more debt, no additional car loans or other credit lines to your favorite clothing store.  None of this will look good when applying for a home loan.

  • Keep your income stable.  If you are one that jumps around from job to job it really can look negative on your mortgage application.  Ideally you will want to have a good stable income for around two years to show reliable income.

There are other items you may come across such as higher interest rates or even having to look at a less expensive home than you thought you could afford.  It would be wise to find a place that could be easily paid off with a 15-year mortgage this way hopefully you wont run into this situation again.  The moral of the story is that buying a home after bankruptcy is possible and in some instances sooner than you think and each situation is different, do your own research and don’t lose faith!

If you are ready to buy a home check out www.moversatlas.com to research the neighborhoods and communities that you are interested in buying real estate. We provide everything you need to know to make an informed decision on buying your new home!

 

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!