Home ownership after bankruptcy

Submitted by Jen Jones on Tue, 04/21/2009 - 9:15am

Home ownership after bankruptcy

Bankruptcy gives you a fresh start; a relief from the stress and uncertainty about your future. Your hope is that things will soon be back to normal. But that hope is often based on the answers to so many questions. For many, one of those questions may be about your ability to buy a home. You may have heard the myth that a bankruptcy is a black mark on your credit, and that you will never be able to buy a home. Don't believe it for a second! You can buy a home after bankruptcy. With some time and planning, it will be much easier than you think.

First and foremost, you need take what you have learned through the bankruptcy process and apply it to your everyday management of money. Start small with credit cards (secured cards may be your only option at first) or other lines of credit and use them sparingly and pay on time. The point is to establish a healthy payment history, which is the most critical component of your credit score. Remember that when first rebuilding your credit, interest rates will be a bit higher. Nevertheless, it is important to obtain some credit to demonstrate you can maintain your finances and that the risk to grant you credit, like a mortgage or car loan, has diminished.

A mortgage lender is going to want to see at least two years of responsible credit handling as well as a steady job. A reliable source of income will mean a great deal to a bank when deciding whether or not to grant you a mortgage. Be aware that to a bank, sporadic employment, part-time jobs or freelance work will not be an adequate demonstration of steady employment.

Down payments are also important, especially in today's lending market, but those requirements can vary. You will certainly stand out as a "good" risk if you have cash available as a down payment. Bankers will recognize this as responsible money handling and it will further demonstrate that you have maintained employment. Additionally, a down payment will help keep your monthly mortgage payment at a manageable level. The larger the positive difference between your monthly income and your mortgage, the better chance you have of being qualified.

Today's volatile financial environment is for many people the most serious recession they've experienced. However, in terms of real estate, bad markets often translate into opportunity. Home prices nationwide have fallen substantially and and are unlikely to reach pre-recession levels for quite some time. This means that homes will be more affordable in the next five years. Additionally, the federal government is creating a number of first-time home buyer incentive programs to encourage home ownerhip.

Given the nation's collective effort to help everyone get back on their feet, a person emerging from bankruptcy will be in a great position to own a home in very little time. With the advice of an experienced bankruptcy attorney and some sound financial planning, you can be rid of your debt and be on the path to owning a home.

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