Buying a Home After Bankruptcy

Many people believe that it is next to impossible to buy a home after bankruptcy, but nothing could be further from the truth. Mortgage lenders require you to wait out a period of 2 years after bankruptcy, after which you can get a mortgage approved if you do not overextend yourself and keep up with all of your payments. It takes a good deal of time to get back into the real estate game after bankruptcy, but there are some tactics that can be used to speed up the process of credit repair, and get a mortgage approved earlier than you might expect.

Start by repairing your credit

This is the first and most important step in order to work towards a good repayment track. Drawing up your own budget is a good way to begin the process of credit repair – make sure you account for all your expenses, so you do not exceed your income or live beyond your means.

Check your credit report carefully

Scrutinize your credit report after bankruptcy, and check whether it is accurate or not. A “Post Discharge Dispute of Consumer Liability Report” is offered by some companies, and could be helpful for you in this regard. By checking the credit report, you will get an idea about the sort of payment you can afford. This is essential, because when looking for a mortgage after bankruptcy, you need to be clear on just how large a mortgage you can take. Keeping this in mind, you need to look for houses that fall within your range. Get the mortgage approved first, and then select a house – this is known as pre-qualification.

Throughout the process, do not hesitate – most agents and banks will be willing to work with you, or refer you to those who will be willing to help you out.

Finding the right lender

Try to work with a realtor, as they will pre-qualify you and have access to reliable loan brokers. Loan brokers will work to find you lenders, and thus keep you safe from any scams. As an individual who is just out of bankruptcy, you are liable to present a vulnerable picture, and many dodgy lenders might look to exploit that. Loan brokers can help you get legitimate lenders.

Purchase within your means

Do not give in to extravagant whims, or feel compelled to use up all the money you apply for. Select a house that is sufficient for your needs – just because you get pre-approved for $2,600 mortgage payments doesn’t mean you need to get a house with exactly this amount of payments. If you find a satisfactory house for less than this, go for it.

Expect higher interest rates

If you apply for a mortgage straight after bankruptcy, there is a high chance that you will be subject to high interest rates, because your credit is not likely to be particularly good.  However, if you wait out the 2-year period, meet all your payments during this time, and take care not to over-extend yourself, you are likely to get a mortgage at a reasonable interest rate despite bankruptcy.

Refinancing

Refinancing is the way to go if you wish to work on lowering the interest rate after having purchased the house. This process is time-consuming and is likely to cost a large amount of money. Therefore, if you are unsure about whether you will be able to make the payments plus the high interest rate, it is best to hold back and work on repairing your credit so you can vie for a more reasonable interest rate later when you get your mortgage approved. Meanwhile renting is always a good option.