How To After filing for bankruptcy, you should buy a home.
It is not an easy decision to file for bankruptcy.You feel like you will never recover from mounting debt.But, you will.You can rebuild your credit and be ready to buy a home in a shorter time if you have a clean slate of bankruptcies.
Step 1: Understand the types of bankruptcies you filed.
You can either file under chapter 7 of the federal code or chapter 13 if you choose.Your ability to buy a house may be affected by how you filed your case.In a chapter 7 bankruptcy, the Trustee ordered the distribution of your assets in exchange for a complete discharge of all your debts.This form of bankruptcy is called a "fresh start".The court consolidated your debts if you filed under chapter 13.The balance of your debts was discharged after regular payments for three to five years.The courts refer to this as a wage-earner's plan.For up to ten years, both types of bankruptcy can stay on your credit report.The credit reporting agencies will often remove successfully discharged chapter 13 bankruptcies as soon as seven years after the filing date.
Step 2: Check your credit score.
You need to know where you are going.You can get a free credit report every year.The only credit reporting service authorized by federal law is this one.You can monitor your credit score at no cost through credit card companies.As you rebuild your credit, you can watch your score increase.Don't sign up for free credit scores and credit reports if you have to enter a credit card number.You may be charged for credit monitoring services that are questionable at best.
Step 3: A down payment savings plan can be created.
Financial professionals recommend saving 20 percent of the purchase price for a down payment.That is $20,000 on a $100,000 house.The best case scenario is a conventional mortgage.If you want to put money away every paycheck, you should start a regular savings plan.If you can get a government regulated loan, your down payment may be as low as 3 percent.The initial investment on a $100,000 house is reduced to $3,000.Veterans with honorable discharges may be able to get a VA mortgage loan.Savings are still needed for closing costs and moving.
Step 4: How much do you have left over to buy a house?
Your other expenses include your mortgage.Since your house will be under a loan, you will have to pay homeowner's insurance and property taxes.You should budget no more than 28 percent of your income for housing expenses.
Step 5: Establish credit by living within your income.
Paying your bills on time and taking on debt in the form of credit cards, auto loans, or small bank loans is the fastest way to increase your credit score.Credit cards with high hidden fees can be avoided.You can get a no-fee credit card.Credit card balances should not be more than 30 percent of your total available credit limit.
Step 6: The requirements of government-affiliated mortgage programs should be reviewed.
Along with the Federal Housing Authority, the US government works in tandem with two quasi-government enterprises to help ensure availability of mortgages for low and moderate income Americans.The Federal National Home Loan Mortgage Corporation, also known as Fannie Mae, allows you to finance some or all of your closing costs if you have a low down payment.Income guidelines and documentation are required to qualify.Freddie Mac has income guidelines and is more dependent on your credit score than the Federal Home Loan Mortgage Corporation.Those who meet income guidelines that are less strict than Fannie Me and Freddie Mac can get a government-guaranteed loan from the Federal Housing Authority.Down payments can be as low as 3 percent.Those who completed their enlistment with an honorable discharge may be able to get a Veterans Administration loan.
Step 7: Consider other mortgage options.
There are other options for people with poor credit.The Neighborhood Assistance Corporation of America (NACA) is a non-profit group that helps people with damaged credit obtain affordable mortgages with little or no down payment.A NACA mortgage is not dependent on your credit score, but you must complete a financial counseling and savings plan in order to be approved.After a bankruptcy, conventional loans are an option.Contact your local bank or credit union to find out if there is a suitable mortgage for you.You can find seller-financed homes.This type of agreement allows you to directly pay the seller of home over time, instead of using a bank.In order to protect the interests of both you and the seller, seller financing contracts must be written by a real estate lawyer.
Step 8: Understand the waiting periods.
The VA has the shortest waiting periods to apply for a mortgage.If the bankruptcy has been completed to the satisfaction of the court, the waiting period is two years from the final discharge.It is possible for the lender to make exceptions for borrowers who have made at least 12 months of on-time payments.Depending on the circumstances of the bankruptcy, Fannie Mae loans have a two to four-year waiting period.NACA and a conventional mortgage do not have an automatic waiting period.The NACA financial counseling and savings plan may take two years to complete.Conventional lenders will likely have their own requirements as well, but also have the flexibility to consider your overall circumstances and write mortgages at any time after your bankruptcy filing.You can build up your savings and credit score during the waiting period.
Step 9: You should beware of mortgage scam.
It can be frustrating to sit out the waiting period after the discharge of your bankruptcy."Your Bad Credit Doesn't Matter" is a sign to hang up the phone, throw away the junk mail, or get rid of the email.There are a lot of signs that a mortgage may be a scam and you should be aware of them.It doesn't matter if the mortgage claims your income or credit.If a lender is willing to make a loan that will drive your mortgage payment plus insurance and taxes above 28 percent of your gross income, this is a company that is setting you up to fail.Prepayment penalties and excessive loan processing costs.Prepayment penalties are illegal for owner-occupied homes, and your closing costs should not exceed 5 percent of the loan.The loan costs, fees, and commissions are not detailed.