Buying a Home After Bankruptcy
It is a common misconception that if you have a bankruptcy on your credit history, it will be virtually impossible to buy a home. However, while it may still be complicated following a bankruptcy, it is absolutely possible if you give it enough time and ensure your situation has stabilized. Follow these steps for buying a home after bankruptcy.
- Give it some time. Your ability to get approved for a mortgage loan depends on the circumstances on which you lost your home. For a conventional loan, you’ll need to wait four years after a short sale and seven years after a foreclosure in order for a lender to consider your loan application. Other types of loans may have less time restrictions if you have good credit other than missing house payments. A loan officer will be able to evaluate your situation and can discuss you options available to you and when.
- Explain your situation. Not all bankruptcies are created equal. Some lenders may make exceptions to the waiting period if you can prove that your foreclosure was not due to negligence on your part, but to factors beyond your control. These factors would include a loss of a job or major medical problems that have drained savings and prevented you from earning any income. If you can show that these circumstances are behind you, creditors may be more lenient.
- Boost your credit. Use the time you have to wait to buy a home following a bankruptcy to repair your credit. Bankruptcy and the time leading up to it (if you defaulted on loans) damages your credit. Following a foreclosure, it is crucial to show that you are prepared to take on the responsibility again and that you have mended your ways. One of the best ways to fix bad credit, contrary to belief, is to get a credit card. If you make purchases and pay them off in a timely manner, it can show that you are responsible enough to take out larger loans. Make sure all bills are paid on time and pay down any outstanding debt.
- Save for your down payment. Another thing you can do while you are waiting your time is save for a down payment. Unless you can get a VA loan, which can be as little as 3.5%, most lenders require at least 20% down to get the lowest interest rate on a loan. It may take a while to save so start now.
- Get pre-approved. Getting your loan paperwork in place and getting pre-approved for a loan is a big step in the right direction and helps the transaction become a smooth one. Most real estate agents prefer you to be pre-approved before they will work with you and certainly sellers before they will even consider your offer.
If you have any questions or are ready to start looking for a home, contact TCP Real Estate today!