Having a Bankruptcy and Looking for a Home Loan

The most frequently asked question after a person has filed bankruptcy is if they could still qualify to purchase a home or refinance. The myth states that you may have to wait a period of a couple years in order to do so. However, the truth is day after the discharge date, anyone can qualify for a sub-prime home loan or refinance. Getting an "A" paper, conventional loan requires 4 years after the discharge date of a BK (Chap. 7).

Rates are not as bad as one may portray them to be as well. "A" paper loans compared to sub-prime loans are about 1-2% difference in 30 year fixed rates. There are credit rebuilder programs that help one boost credit to qualify for better rates.

Kevin

Hi Kevin

Welcome to the forums. After filing bankruptcy, an individual should mainly stress in rebuilding his credit back to "A Rating". He should follow some of the legal steps that will help in building up excellent credit rating within a short time.

As per the new bankruptcy laws, even after filing, a person is required to pay his debt, therefore, there is no escape from it even after filing bankruptcy. In such circumstances, its better to pay off the debt as soon as possible to acquire better credit ratings in the future.

Regards
Roxette

You are correct that they do not have to wait a few years in order to obtain a mortgage after bankruptcy. One could qualify for a high-rate loan in as little as 6 months.

However, those coming out of bankruptcy are probably better off waiting until they qualify for the FHA loans. They would be able to get a better rate on their interest.


The interest rates on FHA loans are typically only half a percentage point higher than regular mortgage rates.

Considering that these post bankrupt consumers have had trouble in the past with credit and interest rates, it is better for them to stick with interest rates that would be a little more manageable than a high-rate loan for a non FHA loan.

A post-bankrupt consumer could typically get a FHA loan 2 years after their case has closed.

In addition, before they embark on this massive new spending, the consumers need to be sure that they could actually afford a new home.


If they cannot keep up with the costs of home ownership, they are setting themselves up for a return to bankruptcy court. So some caution should be exercised.


In addition, try to rebuild your credit in the 2 years after bankruptcy. A post bankrupt consumer would have to get and use credit in order to build their credit score.


An auto loan could help consumers rebuild their credit. They just have to be prepared to pay extraordinarily high interest rates. Just make sure that all payments made are on time. This is another critical factor in your credit score.


They should also take a break from credit in order to lean from prior mistakes. If they had a problem with overspending, they should create a budget and learn how to stick with this budget.


If the person was caught off-guard with an emergency, he or she should now use this lesson as motivation for developing a savings fund for future emergencies.


If the person was overwhelmed with credit card bills, the person should look for a job that provides insurance coverage.

I just was discharged from Chapt 7 and I am working with a firm called Lexington Law to fix my credit report which has a ton of errors on it after the bankruptcy. Their costs are very reasonable as well.

I have heard that Lexington Law wrongly reports the accounts and disputes on incorrect entries. Also, if you ask for a refund, then they start making excuses. Make sure, that they handle your accounts in the right way.

You actually get to pick the accounts for them to dispute so if they dispute the wrong ones its your fault.

What if I find the account has not been shown correctly and then I file a dispute with them by asking them to validate it. If they fail to validate it, my dispute sounds valid

Having just gone through chapter7 myself. It is only 2 years for a person to receive prime mortgage rates after discharge. Not 4. Anyway, even if you are just coming out of Bankruptcy, and need to buy a home at say 9% interest rate. You are 1. Creating a good credit record by paying your mortgage on time and 2. you are still getting a huge tax break on that 9% interest that you are paying. Intrest rates for homes are all relative. You may be paying more for interest, but you getting that tax break as well.

Right now I have just filed for bankruptcy. I would like to know what you all recommend I do to help my credit score if there is anything at all. I would like to purchase a house in 2-3 years. After the discharge should I buy a used car or get one of those high-interest rate credit cards that help rebuild your credit or should I just sock up some money in a savings account?

Hi Tony,

Your main intention after filing bankruptcy should be to increase your credit scores. Since you will be looking for a new home, the three digit credit score is the most important factor to analyze your financial worthiness. Based on these credit score, loans or credit can be acquired from the creditors and other lending agencies. When the credit score is evaluated, extensive research is conducted on the following areas of your credit report.

• Your payment history is analyzed.
  
• The amount that you owe is taken into consideration.
  
• Length of your credit history is determined.
  
• They look out for the types of credit that you have used so far.
  
• They will look into your new credit.

Please use the following tips to improve your credit score.

Check for incorrect entries - It is mandatory to check your credit report for any mistakes from all the three credit reporting agencies. You can review your report for at least once in a year as well as several months before you apply for a loan.

Timely payments It will be considered a very good practice if you always pay your bills on time. Your prompt payments will put you in a much comfortable position before you apply for a loan. This point is emphasized because a late or missed payment just before applying for a loan lowers the credit score and has worse impact than a missed payment five years ago.

Bring credit balance to the minimum - It is always beneficial to reduce the credit card balances as much as possible. The FICO scores get affected due to how much money you owe on some cards relative to your total credit limit. Credit scores are seen improving if the balances are kept below 25% of the credit card limit.

Don't linger your payments It is suggested not to increase the ratio by closing an account and transferring the remaining balance to another account since the ratio of the credit card balance is linked to the credit limit. Doing this will lower the credit score which should not be generally done while you are on your way to increase your credit score.

Unused accounts to be kept active - While you are applying for a loan, it is suggested not to close any unused account. At the same time, it is suggested not to open a new account also during that time. It is said because if you are having a short credit history or less number of accounts, the credit score gets lowered when a new account is opened as there is no proven track record of it.

At the present situation, your credit scores are lowered and thus you will have to pay the high interest rates. But if you can save some money in your savings account and try for a secured card some time later, it might help you in the future.

Do let me know your thoughts

Regards
Roxette

Roxette,
Thank you for your advice.
I guess the first thing that I will do is save money and try to get a secured credit card or two.
How long or soon should I wait to try some credit card applications?
Don't inquiries by credits lower your credit score?

Hi Tony

Welcome back!

In today's world, credit is offered to the recently filed bankrupt also. You need to distinguish between a legitimate and a shady company that is offering you. The only problem that you might have to face while shopping for an unsecured card is that it will be more expensive than before and the limit won't be higher

However, a secured card after bankruptcy comes at competitively lower rates than unsecured cards.

As a piece of advice, I will suggest you to treat your credit with respect after bankruptcy. You will be trying to make your place in the credit world and make sure that you get that in a dignified way in the future. Pay your bills regularly and on time. This is the most important factor to improve your credit scores.

Regards
Roxette

I'm in the middle of a Chapter 7 Bankruptcy. I've already had the meeting of creditors and kept my car because I had no other choice - couldn't buy another one while in bankruptcy and didn't have the money at the time to redeem it at market value, and I need transportation. However, I need to payoff the car somehow because it is a strain on my budget. Does anyone know of any reputable companies that loan money to redeem vehicles for people filing bankruptcy (Chapter 7)? I received info from a company called 722 Redemption Funding out of Ohio, but the are out-of-state (I'm in NC), and I don't know enough about them to work with them - especially since they are out-of-state. Any help would be appreciated.

Mandy, check the yellow pages that is listing the local companies in your area. Also, you can consult a lawyer and get some helpful tips from him. I will search for some companies and will let you know if I find any.

You can do some online research as well. Once you find a company, look for them in the BBB and see if they have a good standing with the consumers.

We are currently in Chapter 13, and are wondering if we are still elgible to purchase a home. Our mortgage is not included in the Chapter 13. We are pay our payments to our trustee and all our bills.