How to Buy a Home if You Filed for Bankruptcy

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Just because you've filed for bankruptcy doesn't mean you can't still buy a home. Buy a home if you've filed for bankruptcy with help from a real estate and mortgage professional in this free video clip.

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Video Transcript

Hello, this is Sidney Potter from Potter Equities in Pasadena, California. Thank you for your time. I appreciate it. I've been asked on how to buy a home after you file bankruptcy and I'm here to give you some good news in that it's probably not as difficult as you think. First and foremost, let it be known it is actually theoretically possible, theoretically possible and actually possible to buy a home even when you're in bankruptcy and I'll talk about those points very quickly. There are in fact two points of bankruptcy. There's Chapter 7 and that's a total expungement of any outstanding liabilities and there's Chapter 13 which is actually a repayment of your outstanding liabilities, they're reconfigurated and with that in mind if you in fact did have a bankruptcy and you're thinking about applying for a mortgage loan, it's best at least to approach the lenders after the discharge of the outstanding debt. On a Chapter 7, theoretically you could apply the next day after you've had that discharge, typically two to four months after you file a Chapter 7, a discharge will occur. On a Chapter 13, slightly different, it's a little bit more elongated situation where it may take 6 months to 18 months in order to work out a Chapter 13 because you're reconfiguring debt and you're getting those current. So it may take anywhere from up to a year and a half after you've entered Chapter 13, but once you've discharged that Chapter 13, you're free to apply to a loan. Now keep in mind that most mortgage notes are either conventional or FHA. They are typically more conservative and as a result the typical wait time after you've filed a bankruptcy is about two years. I've seen it as low as 18 months but typically as a rule of thumb it's about two years of the 24 months. However, there is a special note right here. There are a variety of options you have to file or rather to look for a mortgage loan after bankruptcy. You need not go through the regular route of FHA or conventional. Numero uno one, seller financing, in this market 2011, 2012, we have lots of motivated participants in the market that don't care about the bankruptcy, they're concerned about your liquidity and the reserves you have and the ability and motivation to buy the home. Bankruptcy is irrelevant. Secondly, whole sellers out there, now whole sellers typically sell to investors, they also sell to those that simply want to buy a home. Whole sellers are great opportunities because once again they get their property very dirt cheap typically from HUD, Department of Housing and Urban Development, sometimes 20 to 25 cents to the dollar. They're more than happy to sell you at 60 to 65 cents to the dollar in terms of value. The great thing about whole sellers, you're able to step in there with some equity. Item number three, I would go to turnkey investment companies. Turnkey investment companies are similar to whole sellers, okay? They do not care about the bankruptcy. They're simply looking for your liquidity position and you have ability to repay the loan and you'd be surprised, they typically will only allow or rather require up to 10 percent down. Sometimes they'll go 20 to 30 percent. They'll as for a seizing of six months before you get into the fry in terms of home ownership again after bankruptcy but they're very very receptive to those that want to opportunize a situation and buy a home at a reduced price. Fourthly I would actually recommend lease to own opportunities, are land contracts, you don't actually own the home outright but you do have a positional stake in the home and you acquire a title to that home after you've met some of the demands. Another option here is what they call hard money or sometimes they have the euphemism they call it private money. Now the hard money today is not the hard money, it's not the Buick of your grandfather. They actually go, instead of 18 to 17 percent interest rates, they go down to about 10 to 12 percent. It's not as egregious as you may think. Once again, bankruptcy is not important. It's important, but rather it's not the determining factor if you go FHA or conventional. So just as a wrap up and just to recap and to go over what's just been discussed, after you've filed bankruptcy there theoretically and actually are opportunities for new home ownership. So don't be fraught with fear that it's not possible. Three elements I would recommend after you file for bankruptcy and after it's been discharged, numero uno, work on your credit. Number two, get a credit report and see any derogatories, outstanding liabilities that should have been removed that aren't. Sometimes they have this lingering phantom effect. And three, make sure you have a steady job, employment, even if it's only part time, you'll want that stability of income, even if it's for the alternatives that I laid out in terms of home ownership or the conventional route. Keep in mind when you do go FHA within 18 to 24 months, they'll be looking for about a 580 FICO score. They'll be looking for rebuilt credit and they'll be looking for the capacity in which you're going to repay that mortgage debt that you'll hopefully soonly assume. With that, this is D. Sidney Potter. I thank you for your time. I big you well and once again I'll see you at the finish line. Good day.

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