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Getting a Home Loan After Bankruptcy

April 7th, 2010

home-loan-bankruptcy.jpgApproaching potential lenders after a bankruptcy for any loan is challenging and discouraging. Many people, after trying to get credit cards, personal loans, and car loans, give up the idea of getting a mortgage to buy a house. While it may seem nearly impossible to many, it is quite feasible. However, one should prepare to come up with a significant down payment, and to pay higher interest charges. Still do not think it is possible? Read on, then.

Look from the Lender’s Perspective

This may shock some people, but many lenders are happy to finance home purchasers that have undergone the bankruptcy procedure. There are several reasons for this: lenders know that you may not file for bankruptcy for the next 7 years; you have very little debt, if any, since your debts have been discharged; you are ready to pay hefty fees, since your options are limited. The only thing, really, that matters to a bank or a mortgage company is that your income is steady and sufficient, and the proportion of equity in your house would be high enough to offset any losses in case of a foreclosure.

Do the Math and Prepare a Plan

The first thing on your list should be running some simple numbers. Take your gross average monthly income for the last 12 months and divide it by four. From this number subtract any loan payments you have. Divide the result by eight. For example: your gross monthly salary is $3,000. You have a car payment of $200 and a credit card minimum payment of $30. Your result is: (3000/4-200-30)/8 = 65. This is the mortgage amount (in thousand dollars) you would most likely qualify for.

This amount, however, does not equal to house purchase price. Depending on how long ago your bankruptcy has been discharged, you would have to come up with a down payment of anywhere between 15-35% of the home purchase price.

Finding money for the down payment should be another important thing on your list. From the example above, your down payment could be anywhere from $10,000 to $35,000. Some people that are short on money rely on a second mortgage. In your case it is simply not feasible, so if you cannot come up with the necessary cash, start saving immediately.

Check Your Credit Report

Many people simply do not realize that even with bankruptcy listed on their credit, there may be significant errors on their credit report that may need to be corrected. Removing mistakes from credit bureau records may raise your credit score just enough to qualify you for a mortgage. Typically lenders review the reports from all three major credit bureaus, so making sure all your information on file with Experian, TransUnion, and Equifax is accurate and up-to-date should be a must.

Take Steps to Rebuild Your Credit

Open and current lines of credit on your credit file are a positive sign for lenders. They also play a significant role in a credit score calculation. This is especially true for revolving credit: credit cards, lines of credit, HELOC. While people with bankruptcy may not be able to qualify for a traditional credit card, it may be a good idea to sign up for a secured card with a major bank. Use it wisely and pay your balance in full every month, and after a few months you may notice a pleasant increase in your credit score.

Explore Alternative Options

When the real estate market is tight, it is generally easier to get seller financing. There are plenty of benefits that come along with it: lower interest rates, flexible down payment options, and more favorable terms compared to “brick-and-mortar” lenders. When shopping for your new home, tell your real estate agent to discuss this option when negotiating with potential sellers. Remember: communication and negotiation is the key.

This article was supplied by Melissa Spicer from Constant Content.

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