If you have to file for bankruptcy, chances are you’ll run into someone else who is doing it for the second or even third time. This means that it is feasible to receive credit after bankruptcy; you need to know where to look and how to apply. The most important thing is to avoid repeating your mistakes.
A bankruptcy can legally stay on your credit report for up to 10 years, but your credit can improve once your case is closed. While you may be tempted to avoid using credit cards altogether after filing for bankruptcy, doing so would be a mistake. It’s for the best if you do, so much so that you should get started using it right away if you have the self-control to budget it sensibly and pay your expenses on time.
This applies to purchasing a home either before or after a bankruptcy discharge. After two years have passed since your case was finalized, if you have handled your credit well, you should be able to qualify for a home loan as if you had never filed for bankruptcy.
Lenders will evaluate your ability to make a down payment, the consistency of your income, and the amount of your monthly income compared to the loan installments. Consider the following scenario as an illustration. So let’s say you’ve been out of bankruptcy for two years, make $50,000 a year, and have enough cash on hand for a down payment of $50,000, but the monthly payments on the house loan you want to take will be $1,000. You probably won’t have any trouble getting the loan in your current situation, and your credit history shouldn’t matter. In most cases, a monthly mortgage payment of up to 28% of your pre-tax income will be acceptable to lenders.
In most cases, a borrower’s ability to pay is more important to a lender than the borrower’s past. Always keep honesty regarding your bankruptcy filing in mind. Talk about it and brag about how well you’ve restored your credit score in a short time.
The Federal Housing Administration (FHA) is more lenient about providing home loans to borrowers who have previously filed for bankruptcy than the Veterans Affairs (VA) loan program is.
Two years after their discharge from Chapter 7 bankruptcy, persons who have reestablished solid credit or elected not to incur any new credit charges are eligible for FHA mortgage insurance. The VA has similar rules, which stipulate that a discharge can be ignored if it occurred more than two years ago. When the Chapter 13 plan payments are complete, or after 12 months of payments if the Trustee or Bankruptcy Judge approves of the new credit, the VA will guarantee the loan for the home.
More and more companies are prepared to extend credit to those who have just filed for bankruptcy, and the waiting time is also increasing. If you have filed for bankruptcy under Chapter 7 or Chapter 13 and are maintaining your repayment schedule and improving your credit score via responsible debt management, the Trustee or judge hearing your case is likely to accept the loan, and you should have no trouble finding a lender willing to finance your debt. You should also consider how much of a loan you would be willing to take out again. Since there are so many loan companies to choose from in today’s market, it may seem like securing a loan is your biggest obstacle. However, doing so could lead you back into the debt trap if you borrow more money than you have coming in.
Remember that filing for bankruptcy is not the end of the road, but it can come back to haunt you if not dealt with properly. Take the lesson.
To cite this article: Buying a Home After Bankruptcy is a Common Topic for Billy, who frequently writes about and for the subject. Bankruptcy House is another resource where you may learn more and get help.
