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Buying a Home after Bankruptcy

Buying a Home after Bankruptcy

Getting a Mortgage After Bankruptcy

Many people assume buying a home after filing for bankruptcy is impossible. As a matter of fact, some people postpone or fail to file at all because of this fear. They opt not to use a valuable tool that could actually make it easier for them to achieve their financial goals in the future all because they mistakenly believe filing for bankruptcy prevents homeownership.

The truth is filing for bankruptcy is sometimes the only option for someone struggling financially. Many mortgage lenders understand this and would rather see a person take control of their finances than continue to ignore the problem.

It is possible to buy a home after bankruptcy, but there are several things you need to understand in order to carefully navigate mortgage lending in the wake of filing.

What should you know if you’re considering bankruptcy or you’ve already filed and you’d like to buy a home someday?

How Bankruptcy Chapters Affect Mortgage Borrowing

Most individual consumers file for either Chapter 7 or Chapter 13 bankruptcy. Often, the decision to file for one or the other is based solely on whether the filer owns a home at the time of filing.

In most cases, mortgage lenders tend to view Chapter 13 more favorably because they are paying back at least a portion of their debts. They might also be working to remain in their homes as they get the rest of their finances in order.

It is possible for those who have filed for Chapter 7 to buy a home, but it might be more challenging than if you’d filed for Chapter 13. If you’d like to own a home one day, make sure you mention this to your bankruptcy attorney before filing.

Filing Can Increase Your Timeline

It’s important after working through bankruptcy to not rush into borrowing money immediately. You want to rebuild your credit, but it’s also important to make smart choices you can handle. Mortgage lenders typically require a waiting period after filing for bankruptcy to better increase the odds a person has truly gotten back on his or her financial feet.

In most cases, you’ll need to wait two years after bankruptcy before your application will be considered by a mortgage lender. Some mortgage lenders prefer there be a four year period between bankruptcy and application. The important thing to know when you begin to consider home ownership is that you might need to wait – and that’s perfectly fine. There’s plenty you can do during that period of time to better prepare yourself for owning a home.

Checking Your Credit

Credit is an important part of buying a home and chances are if you filed for bankruptcy yours is less than ideal. Bankruptcies remain on your credit report for up to a decade, so if you plan to buy a home within that period of time the mortgage lender will be well aware of the fact that you filed.

Despite knowing your credit is less than perfect, it’s still important to review your credit reports before you file for a mortgage. Yes, the bankruptcy will be there, but you want to make sure there are no errors that could further harm your chances of being approved for a mortgage. Errors are especially common after filing for bankruptcy, so make sure everything that was supposed to be discharged or otherwise dealt with is in order.

For more information about reviewing your credit reports, check out this information from the Consumer Financial Protection Bureau.

Be Open and Honest

The best thing you can do as you embark on the mortgage application process is to be upfront about your financial history with the lender. Most require a letter explaining why you filed for bankruptcy. Mortgage lenders understand that difficult financial times aren’t necessarily an indication that someone is careless or irresponsible with their money.

The best thing you can do is be honest about what happened and provide proof that there were extenuating circumstances, such as medical bills, severance paperwork, divorce decrees, etc.

Focus on Preparing to Buy a Home

It might seem like a long wait to buy a home after filing for bankruptcy, but this gives you plenty of time to save money for a down payment and put together a financial cushion to protect yourself if things don’t work out as planned.

In general, these seven steps can help you prepare for home buying after bankruptcy:

  1. Understand how your type of bankruptcy affects home buying and determine if there are any waiting periods
  2. Check your credit
  3. Start saving for a sizeable down payment
  4. Calculate what mortgage payment you can afford each month
  5. Stick to your budget
  6. Research lending programs that might help make a mortgage more affordable
  7. Beware of scams designed to take advantage of vulnerable borrowers

To learn more or to discuss what you can do to improve your chances of one day owning a home after bankruptcy, contact the Law Office of Robert M. Geller at 813-254-5696.

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At the Tampa Bay law firm, the Law Offices of Robert M. Geller, P.A., we help people with consumer bankruptcy matters in the Tampa Bay-St. Petersburg,  Florida communities such as Clearwater,     St. Petersburg, Tampa, Thonotosassa, Riverview, Lutz, Plant City, Brandon, Carrollwood, Wesley Chapel, St. Petersburg Beach, Lakeland, Mulberry, Dade City, Pinellas Park, Largo, Seminole, Odessa, Oldsmar and Lithia, and counties such as Hillsborough County, Pinellas County, Pasco County, Polk County and Manatee County.