If you've gone through a bankruptcy, you may be wondering if you’ll be able to buy a home again in the future. The good news is that it is possible to own a home again, whether you've gone through a bankruptcy, foreclosure or other financial difficulties.
While it may be a couple years before your able to purchase your own home, you can spend your time preparing to make this dream come true. Your credit will be poor after a bankruptcy, especially if it involved a short sale or foreclosure on your previous home. The good news is that you can build your score back up again to accomplish this dream.
Simple Steps to Buying a Home After Bankruptcy
Are you ready to start working towards purchasing a home? If so, here are a few simple steps to buying a home after bankruptcy. Follow these steps to get on your way to home ownership once again.
Step #1 – Check Your Credit ReportsBefore you start heading down the road to home ownership, you need to start by checking your credit reports. Take time to order your report from each of the top three credit bureaus. These bureaus include Equifax, Transunion and Experian. Since lenders will be looking at your credit reports when considering you for a home mortgage, you need to know what these reports look like.
Step#2 – Examine Reports for MistakesOnce you have those credit reports, you need to examine them for mistakes. If you’ve gone through bankruptcy, previous items that were discharged should no longer appear on your credit report. If you notice these items are still showing, make sure you write to the credit reporting bureau and request that the item be removed. Certain obligations may not exist anymore and the obligations should be removed, but keep in mind that these discharged items like a foreclosure will still show up in some way.
Step #3 – Work to Rebuild CreditWhile your credit score will eventually come up in the years after the bankruptcy, you should do what you can to rebuild your credit to make it easier to get a home mortgage. You can rebuild your credit by making sure payments are always paid on time. Opening a small secured credit card and paying it on time can also be a great way to rebuild credit. Pay off as much debt as you can as well to improve your debt to income ratio.
Step #4 – Save Money for a Down PaymentAlthough it’s definitely possible to own a home after bankruptcy, you probably will need a down payment. It’s a good idea to start saving money right after you go through a bankruptcy. Work to save up at least 10% of the total home value for a down payment.
Step #5 – Start Looking for LendersWhen you’re ready to buy, start looking for a good lender. Traditional lenders and online lenders both have great benefits to offer. Keep in mind that you will probably see higher interest rates on your mortgage because you may still be considered a high risk for foreclosure. If you’re having a tough time finding lenders, seeking out a mortgage broker is a great idea.
Dos and Don’ts to RememberAlong with the helpful steps toward purchasing a home after bankruptcy, it’s a good idea to remember a few dos and don’ts. Whether you've dealt with a bankruptcy, foreclosure or short sale in your past, keep these helpful dos and don’ts in mind as you work towards buying a home once again.
- DO pay of undischarged debts as quickly as possible.
- DO make sure you only buy a home that is within your means.
- DO realize that you will probably pay higher interest rates
- DO understand that you may be able to refinance later for lower rates and payments
- DO know what it takes to re-establish credit with the FHA
- DO consider using small limit credit cards or small loans to prove credit worthiness.
- DO think about asking a family member to co-sign on the mortgage if they have good credit.
- DO remember that income verification will be an important part of procuring a mortgage.
- DO consider rent to own homes as a viable option.
- DON’T apply to every credit offer you get.
- DON’T add debts that are not essential.
- DON’T forget to create a budget and handle money wisely to get back on track financially.
- DON’T get taken by fake rent to own homes scams.
Your dream of buying a home can be realized, even if you've gone through bankruptcy and a foreclosure on a previous home. Keep this information in mind and you can be on your way to owning your own home once again.