Personal bankruptcies have increased dramatically over the last few years and many families felt they lost any chance of becoming first time homeowners.
If you are one of the millions of families whose only solution to their credit problems was personal bankruptcy, you’ve been given a “do over”.
A bankruptcy in your history doesn’t mean your dream of becoming a first time home buyer has ended but it does mean you will have to “repair and rehab” your credit if you want to achieve that dream.
Once the disputed items are being reported correctly, you can now begin the “rehab” portion of your path to homeownership.
The discharge of your bankruptcy does indeed give you a fresh start, but it’s a fresh start at a higher level when it comes to your credit. So you need to understand how your first time home loan lender will evaluate your credit after a bankruptcy.
A lender’s mindset is actually quite simple.
When you apply for your first time home loan, we’re going to ask for a lot of documentation, including your bankruptcy papers, so keep them close. We want to be able to make a smart business decision that you have the ability and willingness to not only repay your first time home loan but repay it ON TIME.
If you have a bankruptcy in your past, lenders want to know that you are “credit clean and sober”
So it’s imperative that you maintain a perfect payment history on all your credit after the discharge of your bankruptcy.
“The dog ate my homework” explanation or “my payment got lost in the mail” is probably not going to fly on your first time home loan application. If you have to, sign up to pay on line or through an “auto pay” program
Late payments after a bankruptcy are like “falling off the wagon” in celebrity rehabs. You’re going to have to start over after each credit ding and “re-enter” rehab.
If you’re currently renting a home or apartment, make sure your rent payments are made on time. Unless you’re making your payments to a property management or apartment management firm, you should also keep copies of your canceled checks to verify an “on time” payment history.
If all your credit cards were canceled in the bankruptcy, apply for a “no fee” secured credit card from a local bank or credit union. Carefully scrutinize the millions of on line offers, they usually have very high fees or interest rates, which you don’t have to pay with a local savings institution.
Your student loans can also be a great way to rehab your credit IF you make the payments on time.
Your goal is to get three credit lines, open for at least one year and all paid on time.
Once you have demonstrated a willingness to repay and an ability to manage your new credit card, it will be easier to get an un-secured credit card or even a department store credit card.
Use them sparingly each month and you will see your credit score and credit history grow rapidly and the path to homeownership becomes a downhill stroll as opposed to an uphill climb.
FHA is the loan choice for most first time home buyers because it has the most forgiving guidelines when it comes to buy a home after bankruptcy, so when you apply for your first time home loan you will be looking at an FHA loan for your first home.
If you have a bankruptcy in your history FHA guidelines require that credit has been repaired and you have completed two years of “credit rehab”.
The first step is to RELAX and realize this is a long term strategy and it’s success or failure will be based largely on your performance. Hundreds of thousands of families have successfully completed their “rehab” and are now first time homeowners.
Ask your burning question about buying a home after bankruptcy
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