Buying a Home After Bankruptcy
Bankruptcy Home Loans Available When Your FICO Credit Score Improves
Aug 22, 2009
Filing for bankruptcy or home foreclosure need not be an impenetrable barrier to property ownership. Buying a home after bankruptcy is a reality for the millions of people who have already filed. However, it will take a while to re-establish a FICO credit score and save a sufficient house deposit. Those who borrow money will also need to accept that they will need to pay an extra amount each month (or higher interest rate) in order to get a bankruptcy home loan due to the greater risk of default posed to the prospective lender.
Is Buying a Home After Bankruptcy Sensible?
An after bankruptcy mortgage may not seem like a smart move as mortgage products will now only be available for subprime lenders. However, bankruptcy provides a borrower with a completely fresh start and a low income-to-debt ratio. The absence of medical bills and credit card debt is likely to free-up money that can be used to save for a house deposit or to afford a higher monthly repayment.
FICO Credit Score
Chapter 7 will make buying a home after bankruptcy more difficult as it shows on your personal credit report for a period of 10 years. The figure drops to 7 years for those filing under chapter 13. This doesn't mean that bankruptcy home loans aren't available for this period, they will just be more expensive. Remember that over a million people file for bankruptcy every year and this represents a huge market that financial institutions want to cash-in on.
Buying a Home After Bankruptcy
Provided that monthly repayments are maintained on existing credit agreements, it is possible to increase a FICO credit score considerably within just a couple of years. The longer the period since filing, the higher the probability of successfully securing an affordable loan for a house purchase. This is because the prospective borrower is better placed to demonstrate greater financial prudence than in the past.
Affordable Bankruptcy Home Loans
Whilst buying a home after bankruptcy is the ultimate goal of the insolvent, affordability is fundamental if monthly repayments are to be maintained for the full duration of the bankruptcy home loan. Don't let a high income-to-debt ratio return because of a bad decision.
- Do not borrow money at a high rate of interest as it will create problems further down-the-line. The longer the period of time that elapses without further credit indiscretions (missed or late payments) the cheaper it will be to get an after bankruptcy mortgage.
- Use the time when a FICO credit score is low to save a higher house deposit as this reduces the risk posed to the lender and the rate charged to you. Remember that a lender is trying to make money whilst protecting their own legitimate business interests.
Don't rush into buying a home after bankruptcy. Maintain monthly repayments on existing credit agreements and your FICO credit score will start to improve within a couple of years. Bankruptcy home loans must be affordable to prevent financial difficulties returning in the future. Remember that it is not possible to file under chapter 7 twice within any 8 year period.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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