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Buying a Home After Bankruptcy

By Colleen Colkitt

When you file for bankruptcy, it appears on your credit report for up to 10 years, and your FICO score also takes a hit until you regain your credit. Filing bankruptcy does not mean you can't buy a home in the future! There are certain things you can do post-bankruptcy to rebuild your credit score and finance a new property.

Although you must wait at least 2 years to apply for a mortgage, you must wait up to 5 years to qualify for an FHA loan. There are several steps to follow after filing bankruptcy, and certain financing options to choose from!

Improve Credit Score

There are many ways to increase your credit score. First, paying your bills on time is very important to improving your credit score. In addition to this, you should not close out accounts because then you eliminate chances to rebuild credit, which hurts your chances of improving your score. Pay credit cards and bills on time, and keep track of your credit report.

Saving for a down payment is also key to getting a mortgage loan, because interest rates will definitely be higher than if you did not declare bankruptcy. Although you may find loan programs with cheaper down payment financing, it will still be higher than if you were a first time home-buyer.

Be smart about your transactions during the time you wait to reapply. Don't take out additional loans because it will show up as increased debt. Try to maintain a steady income through a reliable job so that lenders will see progress when they consider your application. Stability is really what's key here, so try to avoid switching jobs if possible.

Lenders and Finding the Right Property

Typically FHA, or Federal Housing Administration loans are more flexible for those who are coming out of bankruptcy. These loans can be offered through traditional lenders and they will be more likely to agree to lend to those with lower credit scores.

When applying for the loan, disclose all information about your past. Be honest about your financial history, because lenders will be able to find out anyway, but if you are honest, your chances of getting approved increase.

Look at homes within your price range. Make sure your monthly mortgage payments will be reasonable compared to your budget and income. Typically mortgage lenders want your housing payment no more than 30% of your income. Conventional loans take more time to qualify for as opposed to unconventional loans. With an FHA loan, an applicant must have no outstanding tax liens, or money owed without a repayment plan.

What's Next?

Although you may qualify for a loan, it's important to keep things in perspective about interest rates and down payments. Make a goal to save and pay a larger down payment so that your loan will be smaller and less of a burden to repay.

Sometimes even your improved credit score is not enough to get approved. This is not a death sentence! Keep working on your credit score and maintain your income levels so that in the future when you apply, lenders see your improvement and progress!

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