Buying a home after filing a Chapter 7 bankruptcy is challenging, but not impossible. If you are contemplating filing bankruptcy—or your already have—use these tips to help improve your credit score, so that you can purchase home.
Here are four tips for buying a home after filing for bankruptcy:
1. Rebuild Your Credit
After you file a Chapter 7 bankruptcy, your credit score will tank. A bankruptcy may lower your credit score by 160-220 points, depending on your current score. If you want to be approved for a mortgage, you will need to reestablish your credit.
Take action and rebuild your credit by applying for and using secured loans. Other secured credit options, such as credit cards—including store and gas cards—will work as well. Aside from establishing credit, you should make every effort to pay your bills on time.
2. Wait It Out
Most FHA mortgages will not lend to people who have filed for a Chapter 7 bankruptcy in the last two years. Although it is not ideal, you must wait at least two years—four years is even better—before applying for a mortgage.
It may be possible to obtain a loan sooner, but it is best to wait it out. Why? Because even if you are approved, you will likely pay outrageous interest and fees. By waiting it out, you will get a better deal and save money in the end.
During this time, make sure that you are paying attention to your credit. You should also ensure that you are not accumulating debt.
3. Save, Save, Save
While you're waiting it out, make sure that you are saving up money. Home lenders require a down payment of at least 5 percent; but with a bankruptcy on your record, you may have to pay more for your down payment.
Stay focused and put some of your paycheck aside, so that you can afford to pay for the down payment. If you have to, sacrifice luxury costs in the meantime.
4. Be Realistic
Finally, be realistic with yourself. Don't try to obtain a loan for a house that you won't be able to afford. Look at your income, savings, and monthly costs realistically and use an online calculator to help you determine what is in your budget.
A Chapter 7 bankruptcy may scar your credit, but it won't prevent you from getting the things you want. With a little planning, budgeting, and a skilled bankruptcy attorney, you can relieve your debt and still get the things you want—including a home. For more information, contact Smith & Weer PC or a similar firm.
Hello, I'm Christina Miller. Have you ever been fascinated with why the law works the way it does? Ever since I was in junior high, I had an intense interest in anything related to our legal system, whether it be a crime drama on television, a judge show or a legal case covered on the news. I followed it all. As time progressed, I began learning about how the actual legal system worked and not just the fictionalized version of our legal system. This has lead me to start writing my own blog posts about law that I hope will help others.