Buying A Home After Bankruptcy
Here Is What You Should Know
Sadly for many aspiring homeowners, hard times call for the need to file for bankruptcy. Declaring bankruptcy can be devastating and what’s even worse is that it can kill all your house buying plans. Bankruptcy will not only lower your credit score but also limit your ability to borrow loans. It takes quite some time to build your credit so that it is enough to grant you a new credit card or mortgage for a home. The beauty about bankruptcy is that it does not imply that you’re forever isolated from the property ladder. You just need to know when and how to get back on your feet. So how should you go about it?
Work towards A Steady Income
If you’re looking to buy a home after bankruptcy, then you should also consider maintaining a steady income. Regular employment, particularly on a full-time basis is the easiest means of having a steady income stream. Later on, you will probably realize that it is better to stick with the same employer instead of hopping from one short-term job to the other. Besides ensuring that you have a steady income flow, you must also work on saving a portion of your earnings to help build your deposit and show your future lenders that your once poor financial situation is now on the cash-positive side.
Work on Rebuilding Your Credit
The first step to take if you want to buy a home after bankruptcy is rebuilding your credit immediately after the bankruptcy has been discharged. You’re probably wondering, how do I rebuild my credit? Well, rebuilding your credit is pretty much straightforward. Start by ensuring that you have cleared all your bills, including the utility payments. After clearing your bills, you can try to acquire a secured credit or gas card to help you establish a new credit history. In most cases, lenders want to see a minimum of 12 months of on-time payments before they can consider giving you a home loan. It is equally important to closely monitor your credit score to make sure that nothing inaccurate is reported, including discharge debts arising from filing for bankruptcy.
You should also ensure that you’re not wrongly penalized by incorrect debts, duplications or listings that have already been cleared, such as an overdue electricity bill. Moreover, getting your financial affairs in order in the shortest time possible helps you present a stronger case to your prospective lenders once you want to buy a home.
Getting a loan after you have filed for bankruptcy may require 18-24 months which is quite a long wait for anyone in a rush to buy a home. If you’re among the impatient home buyers, it is advisable to tread with caution because predatory lenders are known not to adhere to this timeline and will offer you a loan at exaggerated interest rates. Keep your calm, be patient and wait for the appropriate time to pass, then you will get a loan at reasonable interest rates.
Ready Yourself for High Interest Rates
If you have been through bankruptcy, you should anticipate paying higher interest loans than one who has not been bankrupt. Making huge down payments will significantly reduce the loan amount and consequently cut down the interest owed. Besides, you might be able to refinance your mortgage at a later date to get loans at lower interest rates.
Do Not Buy More Than You Can Afford
It should be no surprise to encounter people who fall in love with a home that is way beyond their budget. Since a mortgage payment is in most cases a fixed expense that you’ll be paying off for months to come, it is important for this to be an amount you can easily manage. In this case, the rule of thumb is to have a mortgage payment that does not exceed 30% of your total monthly income. Mortgage calculators will help you establish the amount you’ll be paying every month after all interests, and down payments have been factored in.
When Should You Buy A Home After Bankruptcy?
You must carefully plan when you will be able to purchase a home because bankruptcy records can stay on your credit report for four years or more even despite the fact that bankruptcy lasts roughly three years. The length of your bankruptcy history also depends on the bankruptcy type, amount of debts accrued and whether your bankruptcy declaration was voluntary or involuntarily. You should also not rush into applying for mortgages because this will be recorded in your credit report and could adversely affect your borrowing capabilities in the future. When applying for a home loan, make sure you have enough evidence showing that you can support a mortgage and demonstrate that you have attained financial stability.
Bankruptcy isn’t one of the most pleasant experiences, but it should not shatter the dream of home ownership. Research the options at your disposal, be sensible with all your financial affairs and exercise patience.