How to Buy a House While in Bankruptcy
Declaring bankruptcy is a mind-numbing experience that leaves you thinking that life as you know it is over. Since your credit reports will contain mention of your bankruptcy for up to 10 years, you think that buying a home or a car will be out of the question for that long. The fact is, you can begin to house hunt in less than a year or two following bankruptcy, if you follow these steps.
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Instructions
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Check your credit reports for errors. Recently, the government found that about one out of every four credit reports as some significant error. So it makes sense that you start the rebuilding process by obtaining copies of yours. The federal government requires each of the three credit bureaus to provide you with a copy of your reports every 12 months.
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Rebuild your credit. Following a bankruptcy, many lenders will hesitate extending you credit because of your bad history. You must prove them wrong, particularly if you want to position yourself to buy a home. One of the best ways to do this is to obtain a credit card that is secured by a deposit. It's called a secured credit card and is offered by CapitalOne and other card companies. Start using it and make the monthly payments before they are due. Do not pay off that card as it will not help you rebuild your credit. Another way is to secure some type of installment loan that requires you to make monthly payments. It can be for a car, for tuition, or simply is a personal loan.
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Apply for a home mortgage. Most individuals need about 18 months to 2 years from the time they were released by the bankruptcy court to restore their credit to what it was before they declared bankruptcy. Further, the Federal Housing Administration will recognize your re-established credit if 2 years have passed since your bankruptcy discharge, you have dispensed with or are making payments to satisfy state and federal taxes, you have paid all judgements and that 36 months have passed since the resolution of a foreclosure.
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Rent to own your home. If mortgage lenders resist making you a loan to purchase a home until you have proven to be creditworthy, and you need more time to build a down payment, you can look for a home that is owned by someone that is willing to enter into a "rent to own" contract. Aside from providing you with more time, this device can be useful for a person who is having difficulty selling their house. But there are both advantages and disadvantages to this kind of solution. First, you will need to make a deposit on the contract which could amount to thousands of dollars. And if you are late making payments in the future, the contract will terminate and the seller can claim your deposit.
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Pay what it takes to get back into the game. Even if you have done all you can to repair your credit following a bankruptcy and are successful in getting a loan to buy a home, you may still have to pay above-market interest for it. All will not be lost. In the future, when your credit has improved even more, you might be able to refinance your mortgage to make the rate more reasonable.
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