Buying a home after bankruptcy is a smart move. And yes, it is possible! If you don't own a home already, buying a house is an excellent step toward rebuilding your financial life. A home can be a great investment because it is one of the few major assets you will own that will hopefully appreciate over time. Home ownership also demonstrates stability, which can reflect positively on your credit profile.
The good news is, as soon as a year after your debts are discharged in a Chapter 7 bankruptcy, you may be eligible for a good car loan, and just two years after completing a bankruptcy, you may become eligible for a home mortgage with a good interest rate. If you are still making payments in a Chapter 13 bankruptcy, buying a new home could be trickier, though it will not necessarily be out of the question. Generally, your trustee will have to grant permission for you to buy a new home if your are still in your plan. One situation where you may be allowed to buy a home before the end of your repayment plan is if you already own a home which you would like to sell. If you have equity in the home, you may be able to use some of the sale proceeds to pay back debts, and then use the rest to make a down payment on a new property. The payments for the new mortgage may or may not be included in your repayment plan.
The key to owning a home after bankruptcy is rebuilding your credit. Be proactive. Post-bankruptcy, you need to know your credit score and be familiar with your credit report. If there are discharged debts with balances still showing on your credit report post-bankruptcy, contact the credit bureaus to have the negative reporting removed. Fixing mistakes on your credit reports will improve your FICO scores.
Of course, another good way to improve your score is to make timely and steady payments on your debt. Take out a low line of credit, and make small purchases, paying off the balance on time at the end of each month. If you own a home or car, set up an auto pay with your bank so you will never be late on a payment again. Utilize your bank's online notification systems to alert you to upcoming payment due dates. Don't ever have an excuse for a late or missed payment.
After one or two years of proactively rebuilding your credit, you will be ready to evaluate your home-buying options. Carefully consider your budget, and what you can afford. Here, a good rule of thumb is that you should pay slightly below a third of your income for housing. A lender will usually pre-approve you for loans with payments equal to about 28% of your income, but 20% is a better, safer bet. That sum should include all of your housing related expenditures, including principal, interest, insurance and taxes. Don't take chances by buying the most expensive house you can afford in terms of monthly payments, counting on the market to increase housing prices; like all markets, the housing market is subject to dips and even (as lately) plummets. Instead, buy a nice house that will fit your needs and try to pay it back as quickly as you can.
Your prudence and careful workÂ post-bankruptcy will be well worth it: in a matter of months, you can go from bankruptcy to home ownership, setting up a solid base for long lasting financial success.
The Law Offices of John T. Orcutt have helped thousands of North Carolina families recover from financial uncertainty. If you are considering bankruptcy, call 1-888-234-4181 to set a free initial debt consultation. Visit the website bills bills.com and fill out our confidential debt questionnaire to help decide if bankruptcy is right for you. Take charge, file bankruptcy.
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