How To Buy A Home After Bankruptcy
Picking up the pieces of your financial life after filing for bankruptcy can be immensely difficult. Getting any kind of credit built back up is an arduous task that takes years, but having that credit is absolutely necessary when it comes to massive undertakings like getting a mortgage. The good news is that if you give yourself time and follow the necessary steps, some of which are listed below, you’ll still likely be able to qualify for a loan to move into your dream home.
The first step is rebuilding your credit, which is no small task. Rebuilding credit from nothing easily takes years, sometimes even decades depending on your financial situation. The biggest step is immediately paying your bills on time. Bills don’t disappear, and even the slightest mishap concerning them will ding your credit. The next task is to actually use your credit card—but only have one. Try to ensure you don’t put more on the card than you can pay off in full throughout one billing cycle. Even if you’re not able to pay the entirety of a credit card balance, be sure to always pay the minimum amount required. Another option is to use secured credit cards, which has a limit tied to the amount in your bank account. This will help your credit improve and increase the confidence of lenders that you can be financially responsible. Finally, don’t forget to check your credit rating at least once per year. In the U.S., credit reports are maintained primarily through three organizations, Experian, Equifax and TransUnion, and these companies are federally mandated to give you one free credit check per year. If you’ve never opened a line of credit for either a credit card or loan, you shouldn’t have an account. But for those who do, it’s of utmost importance to know the contents and work to correct any mistakes.
In addition to rebuilding your credit, you will need to save money for a down payment. The banks want to know that you have an “investment” in the property. The amount of down payment varies depending on the type of loan you apply for but the larger the better, as it decreases the amount of a loan you need and increases the -likelihood of receiving the loan. A solid goal would be to set aside at least 15 percent of your monthly pay toward the down payment.
During the process of rebuilding credit and saving for the down payment, you should avoid taking out any loans. The amount of debt you carry is calculated with a “debt to income ratio” and a high ratio increases the likelihood of being rejected by mortgage lenders. The lenders pay close attention to this number as it is a good indicator or a borrower over extending themselves and becoming a high risk for being delinquent on the loan repayment.
As you can see, the most important factor in determining whether you can obtain a loan is the ability to show the lender that you have a high degree of stability. Mortgage lenders are going to require a steady income and a track record of spending money wisely. They will want to see employment stability so you should avoid making any drastic job changes until you successfully obtain the mortgage. Most banks will want to see that you have been gainfully employed for at least two years but this varies by institution. The key is the ability to show a clear pattern of stability and good stewardship of the monetary resources you have access to.
Going through bankruptcy is a painful experience but with careful planning and a conviction to stick to your plan, you can once again enjoy the benefits of home ownership.
For more information on buying or selling real estate in the Atlanta area, contact Pat Rary with Atlanta Real Estate Brokers or visit our website at www.AtlantaRealEstateBrokers.com.