A primary concern for many Southern Illinois residents who are considering bankruptcy is their ability to purchase a home in the future. A bankruptcy myth that has been circulating for years is that it ruins your credit for life, and it will be a decade before you can recover. Everyone knows that to purchase a house you need good credit. That being said, this myth simply is not true. In fact, if you are diligent in rebuilding your credit, you can purchase a home in as little as two years of discharge.
Check out these six steps to buying a home post-bankruptcy.
- Clean House on Your Credit
Even though bankruptcy will wipe out most of your debt, you will still need to do a little spring cleaning on your credit report after you get your discharge. First, get a copy of all three credit reports (Experian, Trans Union, Equifax), and make sure all the items that were included in your bankruptcy have been accurately reflected and show a zero balance. - Re-Establish Your Credit
Around six months of receiving your bankruptcy discharge, you can start rebuilding your credit. Getting a secured credit card is usually the first step you want to take. From there you can move onto unsecured, and or an installment loan. Building your credit score back up will take time and patience. If you filed bankruptcy with my office as soon as you receive your discharge, we can set you up with our free credit score building program to help get your score back to where it needs to be. - Figure Out What You Can and Cannot Afford
Home buying in itself is a stressful situation in itself, but it is even worse when you go in with unrealistic expectations. Before going house hunting set up a budget and figure out what exactly you can and cannot afford. Buying a house based on the biggest loan you can get is not the best idea. In reality, you should obtain a mortgage that you can afford even if your income dips a little. Remember, buy modestly not elegantly. - Pay Bills on Time
After filing bankruptcy, it is a big NO to have any delinquencies or late payments showing on your credit report. Because of filing lenders will scrutinize your credit history and habits. On time and prompt payment history should be a top priority after you are discharged. - Save Up For a Down Payment
Your down payment is an important aspect after you have filed bankruptcy. Once you have made the decision to buy a house start setting money aside immediately, saving is an essential habit to develop after bankruptcy. Be meticulous about spending, not overindulging, creating/sticking to a budget, and saving regularly. - Consider Different Loan Types
Going for a conventional mortgage might mean playing the waiting game. Those require you to wait roughly four years from the date of your discharge. If you do not want to wait you can apply for an FHA (Federal Housing) or a VA (Veterans Assistance) Loan, these types of mortgages, can get you approval within two years of discharge. The approval time may be quicker but, the loan terms will likely be less favorable and not what you would want for a long-term loan.
The take away from this is that it is possible to obtain a mortgage after bankruptcy even if you have a foreclosure on your credit report. Remember when looking for a house apply wisely for loans and make sure you know the exact criteria lenders are looking for, and save, save, save.
