It's not an easy decision to file for bankruptcy.You feel like you will never recover from mounting debt.But, you will.You can rebuild your credit and be ready to buy a home in a shorter time if you have a clean slate of bankruptcies.
Step 1: Understand the type of bankruptcies you filed.
You can either file under chapter 7 of the federal code or chapter 13 if you choose to do so.Your ability to buy a house may be affected by the way you filed your case.In a chapter 7 bankruptcy, your assets were ordered to be distributed to your debts in exchange for a complete discharge of your debt.This form of bankruptcy is called the "fresh start".The court consolidated your debts if you filed under chapter 13.The balance of your debts was discharged after regular payments for three to five years.The courts refer to this as a wage-earner's plan.You can stay on your credit report for up to ten years with either type of bankruptcy.The credit reporting agencies will often remove successfully discharged chapter 13 bankruptcies as soon as seven years after the filing date.
Step 2: You can check your credit score.
You need to know where you are going.You can get a free credit report every year at theannualcreditreport.com.The only credit reporting service authorized by federal law is this one.You can monitor your credit score at no cost through credit card companies.You can watch your score increase as you pay your bills and rebuild your credit.Don't sign up for free credit scores and credit reports if you have to enter a credit card number.You may be charged for credit monitoring services that are not worth it.
Step 3: A down payment savings plan can be created.
Saving 20 percent of the purchase price for a down payment is recommended by many financial professionals.It is $20,000 on a $100,000 house.Assuming a conventional mortgage is the best case scenario.If you want to put money away every paycheck, you should start a regular savings plan.If you can qualify for a government regulated loan, your down payment may be reduced.The initial investment on a $100,000 house is reduced to $3,000.Veterans with honorable discharges may be able to get a VA mortgage loan.Savings are still needed for closing costs and moving.
Step 4: How much do you have left over to pay for a house?
Your other expenses include your mortgage.Since your house will be under a loan, you will have to pay homeowner's insurance and property taxes.You should budget no more than 28 percent of your gross monthly income for housing expenses.
Step 5: Establish credit by living within your income.
Paying your bills on time and taking on debt in the form of credit cards, auto loans, or small bank loans is the fastest way to increase your credit score.Credit cards with high hidden fees should not be used.You can get a no-fee credit card.Credit card balances should not be more than 30 percent of your total credit limit.
Step 6: The requirements of government-affiliated mortgage programs are reviewed.
Along with the Federal Housing Authority, the US government works in tandem with two quasi-government enterprises to help ensure availability of mortgages for low and moderate income Americans.The Federal National Home Loan Mortgage Corporation, also known as Fannie Mae, allows you to finance some or all of your closing costs if you have a low down payment.Income guidelines and documentation are required for you to qualify.Freddie Mac has income guidelines and is more dependent on your credit score.Those who meet income guidelines that are less strict than Fannie Me and Freddie Mac can get a government-guaranteed loan from the Federal Housing Authority.It can be as low as 3 percent.Those who completed their enlistment with an honorable discharge may be able to get a loan from the Veterans Administration.
There are other options for people with poor credit.The Neighborhood Assistance Corporation of America (NACA) is a non-profit group that helps people with damaged credit obtain affordable mortgages with little or no down payment.A NACA mortgage is not dependent on your credit score, but you must complete a financial counseling and savings plan in order to be approved for the mortgage.After a bankruptcy, conventional loans are an option.Contact your local bank or credit union to find out if there is a suitable mortgage for your income and credit profile.You can look for seller-financed homes.This type of agreement allows you to directly pay the seller of home over time, rather than using a bank.In order to protect the interests of both you and the seller, seller financing contracts must be written by a real estate lawyer.
Step 8: Understand the waiting periods.
The VA has the shortest waiting periods to apply for a mortgage after a bankruptcy.If the bankruptcy has been completed to the satisfaction of the court, your waiting period is two years from the final discharge.It is possible for the lender to make exceptions for borrowers who have made at least 12 months of on-time payments.Depending on the circumstances of the bankruptcy, Fannie Mae loans have a two to four year waiting period.NACA and a conventional mortgage do not have an automatic waiting period.The NACA financial counseling and savings plan may take two years to complete.Conventional lenders will likely have their own requirements as well, but also have flexibility to consider your overall circumstances and write mortgages at any time after your bankruptcy filing.It's a good time to build up your savings and credit score.
Step 9: It's a good idea to beware of mortgage scam.
It can be frustrating to sit out the waiting period after your bankruptcy is over."Your Bad Credit Doesn't Matter" is a sign to hang up the phone, throw away the junk mail, or remove the email.There are a lot of signs that a mortgage may be a scam and you should be aware of them.It doesn't matter if the mortgage claims your income or credit.If a lender is willing to make a loan that will drive your mortgage payment plus insurance and taxes above 28 percent of your gross income, this is a company that is setting you up to fail.Prepayment penalties and excessive loan processing costs are included.Prepayment penalties are illegal for owner-occupied homes, and your closing costs should not exceed 5 percent of the loan.The loan costs, fees, and commissions are not detailed.