While there may be many mortgage programs for homebuyers they usually require a history of good credit, a steady job and often some money in savings. Filing for bankruptcy, however, puts the homebuyer in a totally different situation.
Declaring Chapter 7 or Chapter 13 bankruptcy is often devastating. It shuts down your ability to borrow any money or use a credit card. Your credit is at an all time low. It may take years to build back enough credit to apply for a new card or consider taking out a mortgage on a home. However, with proper preparation and good financial planning, you should be able to purchase a home sooner than you envisioned. 24 months after a bankruptcy is discharged is what most real estate agents perceive as the necessary waiting time for applying for a loan to buy a home after such an event.
Applying for a Mortgage after Bankruptcy
The most important thing to remember is that the bankruptcy must be dismissed. If you are still in the process, or if you are still in credit counseling or any other program that takes over your finances, no mortgage lender will speak to you.
Get your credit report in order. After bankruptcy, you know what your obligations are. There are no more unknowns. If there are debts that have been paid back but still appear on your report, you must contact the credit agency and have them corrected. While you're at it, you should check for other mistakes on your credit report and have those corrected as well.
The fastest way to start rebuilding your credit score after a bankruptcy is to prove to creditors and other lenders that you can be trusted to pay back the money you owe them. There are two ways you can do this before you want to start talking about buying a home and applying for a mortgage. These are secured credit cards and installment loans. A secured credit card gives you credit limited to the amount you have on deposit with the issuing bank. An installment loan can be a personal loan, car loan or student loan.
Things to Remember
- Use only a small portion of your credit.
- Don't max out your credit cards and don't apply for too much credit at one go.
- Move slowly and build up your credit with on time or even early payments.
- When possible, pay back more than the monthly minimum.
- Pay all your bills on time and save some money.
- Stay at the same job for a good length of time.
After the two-year period, make sure that you are fully prepared to apply for a loan. Your lender wants you to meet several criteria before agreeing to lend you money—a good debt to income ratio, stability, and time on the job. Money in the bank and a zero bounced-check history help tremendously. Money talks, so a big down payment carries a lot of weight so save as much as you can and make sure you can really afford a house.
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