Buying A House After Bankruptcy
Buying a house after bankruptcy can be a daunting task for many people who have undergone the trauma of losing almost everything. Close to 500,000 personal bankruptcies were filed this year which accounted for a significant rise in overall filings from the previous year. For individuals who must file for either chapter 7 or chapter 13, receiving mortgage refinancing with bankruptcy on their financial records can also be a difficult approval to attain without an adequate financial strategy. Whether purchasing a home or refinancing existing property, there is hope after experiencing the dreaded "B" word for most families.
There are two types of filings that have differing effects on the personal finances of an individual including mortgage refinancing with bankruptcy or any other concern. It is necessary to adequately analyze which is the best choice for anyone's situation. Many times an individual is forced to file because of unforeseen financial circumstances due to illness, divorce, job loss or other serious events in a family. Necessary filings are not always due to poor money management, although the trend in the American culture lends toward unruly spending through credit card debt and personal loans. This has caused a rise in bankruptcies that account for filings that would not necessarily have occurred with good money management.
However, there are many households that sustain the effects of bankruptcies while having done all that could be done to avoid it. Sometimes when a family loses almost everything it may seem that their financial future and security is permanently at risk which also makes buying a house after bankruptcy seem impossible. It is not, however, too late nor impossible to maintain, repair and get ahead financially if the proper advice and actions are put into place. The basic purpose of filings is to provide a fresh start for the indebted and to hopefully repay some debts with liquidated assets. There are two types of strategies available to consumers who are considering this option.
Each can be filed in court for generally under $200 barring any attorney's fees. Of course, it is usually wise to receive attorney advice for these types of transactions which add additional costs. Chapter 7 filings entail the common liquidation of assets and complete financial disclosure with strict adherence to laws and requirements and can restrict anyone from buying a house after bankruptcy for an extended period of time because of poor credit. Chapter 13 filings are used generally for a re-organization of the financial structure of an individual's assets, financial obligations and budget. It also provides protection for the debtor in cases of complete financial loss of assets. For example, a foreclosure can be stopped, creditors held at bay and interest on back taxes put on hold.
An automatic stop is held on creditors from claiming or forcing liquidation of assets, garnishing wages and a multitude of other financially disrupting actions. Many people use chapter 13 to provide extra time in which to make mortgage payments that they may be behind in or to give extended time in which to sell a home and pay off a mortgage. Mortgage refinancing with bankruptcy filed for chapter 13 is a bit easier than with chapter 7 filings. One feature that is very restrictive in receiving chapter 13 bankruptcies is the imposed budgeting requirements for all who file. In order to meet financial requirements for a chapter 13 filing, consumers must agree to mandatory budget management which will be legally overseen.
Even though this can be restrictive, it does provide a more sensible way of getting out of debt and eventually repairing poor credit in order to more quickly buy a house after bankruptcy. In choosing either scenario of bankruptcy options, there are of course repercussions to the financial status of any consumer. Many suffer from poor credit from 7-10 years and pay higher interest rates on many types of payments throughout that time. It is getting to be easier, however, to receiving mortgage refinancing with bankruptcy which is generally one of the main concerns for anyone going through a financial setback.
Most lenders prefer anyone who has experienced bankruptcy to wait approximately 2 years before buying a house after bankruptcy or before refinancing after bankruptcy. This provides creditors with an established financial payment pattern for the previous 2 years. Lenders are most concerned with current earnings and timely payments over the 2 years prior to receiving financing options for a home. It is becoming relatively easy to receive approval for loans after filing for bankruptcy since there are so many Americans who have sustained this difficult financial set back at least one time in their lives.
For those who are considering buying a house after bankruptcy or mortgage refinancing with bankruptcy, there is always hope in getting back on the right financial track. "Discretion shall preserver thee, understanding shall keep thee:...That thou mayest walk in the way of good men, and keep the paths of the righteous...For the upright shall dwell in the land..." (Proverbs 2:11,20-21) No matter what kind of circumstances any consumer finds himself, it just takes wisdom, good counsel and execution of a workable financial plan to climb out of any financial hole.
Getting A Mortgage Loan After BankruptcyBuying a home after bankruptcy is possible, but the buyer needs to be patient, and wait at least two years after discharge or dismissal of the bankruptcy before applying for a home loan unless he is prepared to pay fifteen or twenty percent down in cash. Also, the interest rate will be much higher if the buyer gets in a hurry. While bankruptcy has a serious effect on one's credit rating, the damage can be repaired. The first thing to do is accumulate three or more high-quality credit references. Once a line of credit has been acquired with banks or credit card companies, and then you need to establish a perfect payment history with them, and keep the charges from getting too high. A debtor should ask each of those companies to agree in advance to give a clean credit letter after he has paid on time for twelve months. Also, he should get letters from utilities providers, his auto insurance provider, and phone service provider. All of this will help in getting a mortgage after bankruptcy.
Having a job is essential to getting a mortgage loan after bankruptcy, and preferably holding down the same job for those years since bankruptcy. Having sufficient income to make the house notes and cover your other expenses is a necessity, and if you've managed to same money for a down payment, that's another point in the buyer's favor. If he hasn't owned a home before, a buyer may find he has an excellent resource in his state's "first time home buyer" program. Many states have such programs, but they don't advertise them, so a little investigative work is involved on the part of the prospective homebuyer. Buying a home after bankruptcy takes effort, but it's worth it.
If the loan applicant hasn't saved the money in a savings account, he may need to find another source for the down payment money. Sometimes a relative will help out with this, and after the loan is approved and the money accepted, a second mortgage can be taken out to repay the relative. The source of the down payment loan must be reported to the mortgage company, however, so you won't be charged with fraud. There are still other sources of money for down payment when buying a home after bankruptcy, and the buyer should check these out before applying for the home loan. There are grant programs available in most states that don't have to be paid back, so he should check out "down payment assistance" on the Internet. There are a couple of programs that allow the seller to assist a buyer, such as Neighborhood Gold or the Nehemiah program. These are the only legal ways a seller is allowed to help the seller to help a buyer.
Even though a bankruptcy stays on one's credit report for ten years after discharge, there are many more lenders who are willing to work with buyers who are getting a mortgage loan after bankruptcy today than in years past. There are Internet sites that will assist in getting a mortgage loan after bankruptcy. One thing the borrower needs to be aware of when buying a home after bankruptcy is the presence of subprime lenders who will take advantage of borrowers with problem credit histories. Typically, they charge excessive upfront processing fees and prepayment penalties. The only fee you should have to pay is an application fee to cover the cost to the lender of pulling your credit application.
It is always to a borrower's advantage, whether getting a mortgage loan after bankruptcy or applying with a stellar credit history, to get quotes from three or four mortgage companies. If a buyer accepts the first mortgage loan offer, he may end up paying a higher interest rate than he needs to pay. Another place where the buyer can be taken advantage of is in the closing costs, so it is important to get those in writing. With that document in hand, applicant getting a mortgage loan after bankruptcy can then go online to see if they are within normal limits. If they are not, he can refuse to go through with the loan unless they are reduced. The point is, just because a person is buying a home after bankruptcy, unscrupulous lenders shouldn't punish him further. The whole idea of bankruptcy is to give a debtor the chance for a new start, and "forgive" his past financial transgressions. Especially for Christians, this is a very important principle. "To open their eyes, and to turn them from darkness to light, and from the power of Satan unto God, that they may receive forgiveness of sins, and inheritance among them which are sanctified by faith that is in me."(Acts 26:18)
Credit history, and the presence of a bankruptcy in that credit history, is important to a lender when considering a prospective borrower, but it isn't the only thing a lender is going to look at. The reasons for the bankruptcy may have an influence in the overall picture. If the bankruptcy was the result of circumstances beyond the control of the bankrupt person, such as illness, loss of employment, or accident, then the good credit and job history prior to bankruptcy will weigh more toward acceptance. If, on the other hand, bankruptcy was the result of poor financial planning, the prospective borrower will have to show reform. Hence, the two-year waiting period mentioned above.