How to Find Home Financing After Bankruptcy
If you have spent any amount of time trying to obtain home financing after bankruptcy, you know exactly how difficult the process can be. Filing for bankruptcy is often the best option to help you out of your debt problems, but it can wreak havoc on your ability to get a mortgage. While it may be difficult, you can obtain home financing after filing for bankruptcy.
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Credit Impact
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Start the process by obtaining a copy of your credit report. As soon as you file for bankruptcy, your credit score will go down by as much as 240 points. Traditional lenders may be unwilling to work with you because of this low credit score. Although your score is low, you can immediately start taking the steps to rebuild it.
Subprime Lenders
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Consider working with a subprime lender. Subprime lenders are able to work with people who have low credit scores by charging more in interest. If your score is lower than 620, you fall into the category of a subprime borrower. Subprime lenders know that a certain number of people will default on the loan and they recover that money by charging high interest rates. Expect interest rates of higher than 10 percent on mortgages as well as adjustable rate terms that could increase the rate even further.
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Co-signer
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Secure a co-signer. The co-signer is essentially guaranteeing the debt, which lowers the risk for the lender. The lender will evaluate your cosigner's credit as well as your own. The co-signer should have a high credit score and a steady amount of income. Many people turn to family members such as parents for a co-signer; but, anyone that is willing to, can guarantee the loan for you.
Payment Plan
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If you file a Chapter 13 bankruptcy, you have to repay your creditors according to a payment plan set up by you. This payment plan will last for three to five years, depending on your situation. If you want to buy a house, the trustee in your bankruptcy case will have to approve it first. Most trustees will not allow you to take on any additional debt until your repayment plan is fulfilled.
Building Credit
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If you take the necessary steps to rebuild your credit, you could potentially get a mortgage under normal terms within two to three years. As soon as you file for bankruptcy, obtain a secured credit card and start making payments on it. If you make all of your payments on time and do not accumulate any more debt, you can rebuild your credit score quickly. Once your score is up above the 620 range, you could qualify for a traditional mortgage without a co-signer.
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