Is Buying a Home After Bankruptcy Possible?

Bankruptcy proceedings can reduce or even eliminate your debt, but it will damage your credit report and credit score in the process, which can affect your ability to get credit in the future for things like new credit cards, a car loan, and a mortgage.

It is possible to buy a home after bankruptcy, but it will take a little patience and financial planning. It’s important to regularly check your credit report to make sure everything is there that it should be – and that there is nothing that shouldn’t be there. You can start to rebuild your credit with secured credit installment cards and loans, ensuring all payments are made on time and in full each month.

Understanding How To Buy A Home After Bankruptcy

First: discharge from bankruptcy

How long after bankruptcy can you buy a house? It varies. However, even to be considered for a mortgage application, bankruptcy must first be discharged. A bankruptcy discharge is a bankruptcy court order that releases you (the debtor) from all liability on certain debts and prohibits creditors from attempting to collect your discharged debts.

Simply put, it means you don’t have to pay off the debts and your creditors can’t try to get you to pay. Releasing your debt is just one step in the bankruptcy process. While that doesn’t necessarily signal the end of your case, it’s something lenders will want to see. The court often closes a bankruptcy case soon after discharge.

Check your credit report

Lenders examine your credit report – a detailed report of your credit history – to determine your creditworthiness. While bankruptcy filings can stay on your credit report for up to 10 years, that doesn’t mean you have to wait 10 years to get a mortgage.

You can speed up the process by making sure your credit report is accurate and up to date. The check is free: every year you are entitled to a free credit report from each of the “big three” credit rating agencies—Equifax, Experian and TransUnion.

A good strategy is to stagger your claims so that you get a credit report every four months (instead of all at once). This way, you can monitor your credit report throughout the year. One of the best credit monitoring services could also be useful in this endeavor.

On your credit report, be sure to watch for debts that have already been paid off or paid off. By law, a creditor cannot report a debt released from bankruptcy as being currently due, overdue, past due, having a balance owed, or converted to a new type of debt (for example, having new account numbers) . If anything like this appears on your credit report, immediately contact the credit agency to dispute the error and have it corrected.

Other errors to look for:

• Information that does not belong to you due to similar names / addresses or wrong social security numbers
• Incorrect account information due to identity theft
• Information from a former spouse (which should no longer be mixed with your report)
• Obsolete information
• Wrong ratings for closed accounts (for example, an account you closed that appears to be closed by the creditor)
• Accounts not included in your bankruptcy file listed as part of it

Rebuild your credit

If you want to qualify for a mortgage, you will need to prove to lenders that you can be trusted to repay your debts. After bankruptcy, your credit options can be quite limited. Of them secure credit cards are the way to start rebuilding your credit and installment loans.

A secured credit card is a type of credit card backed by the money you have in a savings account, which serves as your collateral for the credit line of the card. The credit limit is based on your credit history and the amount you have deposited into the account.

If you fall behind on payments – something you should avoid at all costs because you’re trying to prove you can pay off your debt – the creditor will draw from the savings account and lower your credit limit. Unlike most debit cards, activity on a secured credit card is reported to credit bureaus; it allows you to rebuild your credit.

Installment loans require you to make regular payments each month that include a portion of the principal, plus interest, for a specified period. Examples of installment loans include personal loans and auto loans. Of course, it goes without saying that the only way to rebuild your credit with an installment loan is to make your payments on time and in full each month. Otherwise, you risk further damaging your credit. Before getting an installment loan, make sure that you will be able to pay off the debt.

The good moment

While you may qualify for a mortgage earlier, it’s a good idea to wait two years after bankruptcy, as you’ll likely get better terms, including a better interest rate. Keep in mind that even a small difference in an interest rate can have a huge effect on your monthly payment and the total cost of your home.

For example, if you have a fixed rate mortgage of $ 200,000 over 30 years at 4.5%, your monthly payment would be $ 1,013.37 and your interest would be $ 164,813, which would increase the cost of the house at $ 364,813. Get the same loan at 4% and your monthly payment would drop to $ 954.83, you would pay $ 143,739 in interest and the total cost of the house would drop to $ 343,739, more than $ 21,000 in savings due to the variation 0.5% of interest. .