Home Buying After Bankruptcy: Tips and Helpful Information

After a bankruptcy occurs, buying a home is tricky but not impossible. Rebuilding credit, allowing the bankruptcy to season and shopping for the right loan can help homebuyers on the path to securing a mortgage.

To understand the options for your specific situation, speak with a lender and/or financial advisor.

Let the Bankruptcy Season

After the bankruptcy has discharged, a home buyer must wait for a while to allow the bankruptcy to season. Once the waiting period is complete, the homebuyer may be eligible to secure a mortgage, however, the length of the waiting period is dependent on a variety of factors, including the type of bankruptcy filed and the type of mortgage the homebuyer is pursuing.

Home buyers who have filed for chapter 7 bankruptcy must wait 2 years to qualify for an FHA or VA loan, or four years for a conventional loan. Home buyers with a chapter 13 bankruptcy on their record can secure a conventional loan in two years and an FHA or VA loan in one year, provided that payments are made on time.

Rebuild Your Credit

During the seasoning period, spend time rebuilding credit and saving for a down payment. Using a credit card responsibly is one of the best ways to rebuild credit after a bankruptcy occurs. To do this, work with a bank to obtain a secured credit card. Use the card regularly, and pay off the balance monthly to show responsible credit card usage. 

Save for a Down Payment

While waiting for the bankruptcy to season, it’s also important to save money for a down payment. Saving while also using a credit card responsibly may take some budgeting. Keep a record of monthly income, then determine how much must be set aside for monthly expenses. Whatever is leftover can be put into savings. Set up an automatic deposit into your savings to ensure that the money is always put away.

If you’re not sure how much you’ll need for a down payment when the time comes, talk to a mortgage lender or a mortgage broker to find out. Your lender will be able to estimate how much house you can afford based on your current income and other factors. Since the down payment for the home is typically a percentage of the purchase price of the home, you should be able to deduce how much of a down payment you’ll need once you know how much mortgage you can afford and be better able to decide what type of mortgage to select.

Work With a Lender

Work with a lender to determine what kind of loan you’ll need and what kind of paperwork you’ll have to have in place when the time comes to take out a mortgage. This way, you’ll have all your paperwork ready and will be able to secure a loan when your seasoning period is through.

Contact Your Real Estate Agent

Purchasing a home after a bankruptcy can be a challenge for a variety of reasons. Many homebuyers must be good bargain hunters after the bankruptcy takes place, because budgeting, purchasing an affordable property and remaining financially solvent may be more important than ever after a bankruptcy discharge. To buy the most home you can for the most affordable price, talk to a real estate agent with a reputation for excellence. He or she can help walk you through the process and negotiate a good price for a house.