You can get a mortgage after bankruptcy - if you work at it
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One of the primary concerns of North Carolina consumers considering bankruptcy is their future odds of being able to buy a house. One of the greatest bankruptcy myths is that it ruins your credit for good and it will be a decade before you can recover. That’s simply not true. In fact, if you’re diligent about rebuilding your credit, you can purchase a home in as little as two years after a Chapter 7.
Check out these seven steps to consider when planning to buy a house post-bankruptcy.
#1 Clean up Your Credit
Even though Chapter 7 bankruptcy will wipe out a lot of your debt, you’ll still need to clean up your credit report after you get your discharge. Get copies of all three of your reports, and make sure items included in your bankruptcy properly reflect the filing and show a zero balance. Look for incorrect items and old things that should already be gone off your report.
#2 Re-establish Credit as Soon as You Can
Within six months or so of receiving your bankruptcy discharge, you can start rebuilding your credit. Secured credit cards are usually the first step and from there, unsecured credit cards and possibly an installment loan. Slow and steady is the way to rebuild your credit, and it’s something you’ll need to be diligent about if you plan to buy a home after bankruptcy.
#3 Pay Bills on Time, Always
You can’t have any delinquencies or late payments showing on your credit report after your bankruptcy because lenders will scrutinize your credit history and habits because of your Chapter 7 history. Prompt payment is the top habit to develop after your bankruptcy. Pay everything on time – preferably early. Try not to carry balances on credit cards, and don’t rack up unnecessary debt.
#4 Save up a Down Payment
With a bankruptcy on your record, a down payment is important. Start setting money aside right away. Saving is an important habit to develop after bankruptcy as well, and not just for a down payment on a house. You need an emergency fund and retirement savings too. Be diligent about cutting spending, not overindulging, sticking to a budget and saving regularly.
#5 Figure out What You Can Afford
Once you start evaluating property to buy, you need to carefully consider what you can afford. Buying the biggest house you can get approved for a loan is not a good idea. In fact, you should obtain a mortgage that you can afford even if your income dips a little. Buy modestly. If you need a bigger home later, you can always upgrade once you have equity.
#6 Consider an FHA/VA Loan
A conventional mortgage will require you to wait roughly four years from the date of your bankruptcy discharge. With an FHA or VA loan, though, you may be able to get approved for a mortgage within two years of discharge. You may get approval sooner than two years, but the loan terms will likely be less than favorable and not what you want for such a long-term loan.
#7 Know What Criteria Lenders Require
Apply wisely when you do start applying, and check into what criteria specific lenders look for, including time on the job, down payment, minimum credit score, and other factors. Some lenders are stricter than others, so you should be smart about which lenders you choose. Each mortgage application represents a hard inquiry on your credit, so you don’t want to apply for a bunch of loans.
The bottom line is that you can get another mortgage after Chapter 7 bankruptcy, even with a foreclosure on your record. If you’re still wallowing in debt, don’t live like this. Living paycheck to paycheck, dealing with debt collectors harassing you, and stressing about money is no way to exist. To find out more about North Carolina bankruptcy, contact the Law Offices of John T Orcutt.
Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.