If you’ve filed for Chapter 7 Bankruptcy, you’ll have a waiting period before you can buy a house again. This isn’t a bad thing though, as it gives you time to build your credit back up and get back on your feet.
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The good news is that it’s not impossible to buy a house after a Chapter 7 BK. Even though you wrote everything off, you’ve got a brand new start. Lenders are often willing to lend you money to buy a home to contribute to that fresh start, but you have to prove that you deserve it.
Wait 2 Years
Most loan programs require you to wait at least 2 years from the date of your bankruptcy discharge. This is not the date that you filed for BK, but the official date that all of your debt was wiped clean. During that two-year period, you should take the time to save money and rebuild your credit.
Now that you don’t have any debts, you can put money aside. Build that emergency fund and save money for a down payment on a home. Lenders like to see liquid assets, so the more assets you have on hand, the better your chances of approval become.
You’ll also want to use this time to build your credit score up again. It probably took quite a hit when you filed for bankruptcy. You need this time to apply for secured credit cards and store brand credit cards. When you have a little credit card history under your belt, try applying for an installment loan or an unsecured credit card. No matter what you take, make sure you make regular payments on it and keep your credit card balances as low as possible.
Have Stable Employment
Lenders will want to see compensating factors to make up for your bankruptcy. Even if you’ve built your credit back up and saved money, you still need more. Job stability is a great factor because it shows lenders that you are consistent and reliable.
Lenders will look to see how long you have been at your job as well as how much your income has changed over time. They may pay close attention to your income level when you filed bankruptcy and ask why you had to file BK. Make sure you provide as many facts as possible and support it with documentation whenever you can.
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If you can prove that you have had stable income throughout the process and that you have learned how to better manage your finances, you could be in good shape.
Have a Large Down Payment
Cash talks, especially when you are buying a home. The more money you have to put down on a home after bankruptcy, the better your chances of approval. Lenders want you to have ‘skin in the game.’ In other words, they want your own money invested so that you have more incentive to make your mortgage payments on time.
Lenders don’t like dealing with late payments or defaulted loans. The last thing they want is possession of your home. They want to know that you’ll make your payments no matter how tough things get. This is why going above and beyond the minimum required down payment can help you win the loan approval after bankruptcy.
Don’t Overlook Subprime Loans
Even though FHA, VA, and conventional loan guidelines have gotten more relaxed over the years, they can still pose a problem when you filed for bankruptcy. If you find that the fees are too high or lenders just don’t want to take a chance on you, try a subprime loan.
Today, subprime loans are called portfolio loans. This is because the lenders that writes the loan is also the one that funds it and keeps it on their books. This is good for you because it means the lender can make their own rules. They don’t have to listen to secondary investors that only want ‘top notch’ borrowers. Subprime lenders often have niche products made for people that filed for BK and are trying to get a new lease on life.
Getting a mortgage after a Chapter 7 bankruptcy isn’t as hard as it seems. You just have to make sure you make yourself look as attractive as possible. Build up your credit, save your money, and keep steady employment in order to make yourself look like a good risk despite the fact that you had a BK in the past.
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