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How to Buy a House After Bankruptcy in Texas

Bankruptcy eliminates accrued debts and provides a fresh start, but rebuilding your credit after bankruptcy to make major purchases can be challenging. A common purchase after bankruptcy is a home. The procedure for buying a home after filing any chapter of bankruptcy in Texas is basically the same as any other state. You will require time to rebuild your credit, along with other considerations, before purchasing a home after completing a bankruptcy.

Instructions

    • 1

      Wait two years after your bankruptcy is discharged before applying for a mortgage. Time is the greatest asset you have toward rebuilding your credit and acquiring a home. In general, conventional lenders will not give home loans to anyone with a finalized bankruptcy that isn't at least two years old. This applies to FHA and VA loans, as well as other lenders.

    • 2

      Save a down payment equivalent to 3.5 percent of your home purchase to better your odds of approval, especially if there have been any negatives listed on your credit report since bankruptcy. You might qualify for 100 percent financing after the two years if you have maintained excellent credit since your bankruptcy was discharged, but you should still have a financial cushion just in case.

    • 3

      Rebuild your credit score to at least 620. FHA, VA and conventional lenders want to see at least this number in order to finance or refinance a home, even if you haven't had a bankruptcy. Ways to rebuild your credit include getting a secured credit card or obtaining an auto loan. Pay off the loan quickly and keep a low balance on your credit card.

    • 4

      Work with a loan broker, who will have contacts with several mortgage lending companies and can typically help you find the best deal. Comply with all paperwork requirements quickly. Verify the broker is in good standing by checking with The Better Business Bureau and/or the Texas Attorney General's Office.

    • 5

      Be prepared to pay a higher interest rate, even if it has been two years or more since your bankruptcy. Your credit score and down payment will also impact your interest rate. Most lenders will refinance your loan within a few years if you maintain a spotless payment history, thus reducing your interest rate.

    • 6

      Seek out a hard money lender if you need a mortgage before two years have passed. A hard money lender loans money based on a percentage of the value -- usually up to 65 percent -- of the property used as collateral. Hard money lenders are willing to assume greater risk when extending loans, but they will charge higher fees in exchange. Expect to pay much higher interest rates and have a sizable down payment available -- typically at least 20 percent. If you accept a hard money loan, refinance with a traditional lender as soon as possible. For most people, renting for two years, rebuilding credit and saving for a smaller down payment is a better option.

Tips & Warnings

  • To improve your odds of approval and boost your credit score, keep your debt-to-income ratio low. The debt-to-income ratio is the amount of debt you owe in relation to the amount of money you earn. If your debt-to-income ratio exceeds 42 percent, including a credit cards, loans, other debts, mortgage, property taxes and insurance, you will find it difficult to obtain the loan.

  • Beware of companies offering to repair your credit quickly, especially if they claim they can have the bankruptcy removed from your credit report. Bankruptcies remain on your credit report for seven to 10 years, and it is virtually impossible to have a legitimate bankruptcy deleted sooner.

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