What do I need to do to prepare to buy a house after a bankruptcy?

Question

My husband and I filed Chapter 13 bankruptcy and it is to be discharged next year. When it is discharged we will have no debt except for my $25,000 student loan that we were not able to include. Our gross annual is $90k+ now and we have opened and maintained two $500 limit credit cards that have perfect payment history for over a year now.

What else should I be doing between now and then to qualify for a first time home loan once this is discharged? Approximately how much down payment should we be looking to save? Should we be looking to get our credit score be at a certain level considering the bad mark bankruptcy left? Any other tips? I sincerely want a home. We are responsible people who got into a mess because of a medical hardship. We are paying back debt and just hope to come out of this able to purchase our own house.

Thank you all for taking the time to answer. Any help is sincerely appreciated! :-)

Answer 1

You will be able to get a loan, it's just a matter of what your interest rate will be. Congrats on coming through the other side of BK. Feels good. Doesn't it? :)

As for savings, there are many loan products that have different requirements for downpayment, even zero down. However, most mortgages require PMI (private mortgage insurance) if you put down less than 20%. So if you can save that much, you'll be in good shape and likely to impress your mortgage broker even more having been able to save that much after BK.

Good luck! I'm shopping for a house myself.

Answer 2

I would first write a letter to the credit card bureaus explaining the bankruptcy as being due to a medical hardship, provide the details and ask that it be included in your file.

I doubt you have a problem obtaining a loan. Most lenders will not hesitate to lend you the money but at a higher than usually interest rate. You can lesson the impact by buying down the interest rate but you have to weigh whether having the cash versus a point or two lower interest rate is worth it. I would personally put as little money down as possible then invest the rest or at least maintain a cash reserve for anymore unexpected emergencies. There are a lot of lenders out there. You may consider putting money in a credit union or a homestead savings and loan as opposed to a bank. They generally have more liberal lending terms. You can sometimes get a quarter point or more reduction in the interest rate for having the mortgage payment automatically withdrawn from your account.

Don't sweat the interest rate. It is totally deductable and after factoring in the tax savings a 7% rate only cost you about 4.5 to 5% depending on your tax bracket. When you factor in the appreciation of the property your return on your investment more than makes up the difference. Not to mention, after a year or so you should be seasoned enough to refinance for a lower rate.

Some first time homebuyer programs require that you attend seminars and community sponsored programs that teach you home buying basics. Even if you don't qualify for the program you may want to consider attending. They will give you additional tips and ideas to prepare yourself for the endeavor.

As far as your credit score. You want to limit the inquiries as much as possible. Lender inquires in a 30 day period now only have limited effect. If you aren't current on the student loan you may be inelegible for some government loans so be sure to stay current. You want to maintain less than a 50% debt to credit limit level. For instance, if the credit limits on your cards are $2000 then you want to pay down the amount owed to under $1000. That tends to raise the score 10 or 15 points. Don't cancel any of the cards because that will actually lower the score. Just maintain the less than 50%.

I would recommend a financial organization called Everyday Wealth. It only cost $12 a month but you get a copy of your credit report and it has numerous wealthbuilding tips. There are no contracts and you can cancel at anytime. At least join for a month. It cost about the same as just buying a copy of your credit report. It is also has a business opportunity if you want to share the site with others. There is no additional costs to do so.

Answer 3

I know that FHA requires a waiting period of 2 years after BK discharge and a Credit score of no less than 620. The more I'm reading on the subject .. the general consensus is that you should shoot for 10% down, but you can go as little as 2-3%. The problem is.. anything less than 20% and you pay PMI (private mortgage insurance). Try Suze Orman's FICO Kit .. I've used it and I've found a few other users on here that also found it quite useful. I think it's around $50 and it's web based so you can play with it anywhere you have an internet connection. It's handy because it paints out a lot of scenerios for you based on real information you provide about you & your financial condition. A real eye opener. Personally it made me understand that I couldn't afford a house by putting the facts in front of me in an easy to understand format.

Answer 4

you will need a little more good credit after your bankruptcy. it's very good, that you open 2 new accounts, try to ask your parents or somebody else to put you on their credit like authorized user and absolutely never be late on your payments. try to keep your credit cards balances below 35% (you will get this way the best scoring) and next year you will get your loan. stick with FHA, because this way you will get the best rate.

Answer 5

I was trying to do the same thing. I had to open new credit to show that I am being responsible again with my payments.

go here, this will increase your score and also offer pre-approved credit within a couple of months
http://affiliates.leadflash.com/z/2757/CD3594/