You went through bankruptcy, and now are feeling pretty good about your finances. No debt, some money in the bank and you’re staring at a buyer’s market for real estate. Can you really make the jump from renter to buying a house after bankruptcy?
Back in the old days, buying a house wasn’t easy. And doing it after bankruptcy was a dead end no matter what you did.
But times change, and with millions of people filing for bankruptcy each year it’s unrealistic to assume that mortgage lenders are going to turn their backs on you.
The key to buying a house after bankruptcy is in these three simple steps.
Save Your Money
There’s an old saying that it’s easier to borrow money when you don’t need it. You can take that to the bank.
These days you need to have a downpayment of 20% or more of the purchase price in order to qualify for a mortgage. That’s good sense, not just underwriting standards.
Figure out a savings plan after your bankruptcy is discharged, and stick with it. Save up $50 per paycheck if you can’t do more than that; every little bit matters, and it adds up over time.
Pay Your Bills
It may seem like a no-brainer, but your payment history after bankruptcy is important to a lender’s decision on whether to give you a mortgage. I’m not just talking about debts that may have survived your bankruptcy discharge, but also those bills that don’t appear on a credit report.
For example, your rent. If you show a lender that you’ve been faithfully making those $2,000 monthly rent payments on time, chances are better that you’ll be able to make a mortgage payment of $1,000. Lenders have calculators too, you know.
If Possible, Ask For Help
Maybe you’ve got a relative who has decent credit. After making sure that you’ve got money in the bank and the ability to pay the mortgage without help, consider asking that relative to co-sign for you.
When someone co-signs for you, they’re legally liable for repayment if you fail to live up to your obligations. That’s why it’s important for you to be able to make those payments by flying solo. Using the co-signer as a financial crutch is unfair to them, and puts your personal relationship at risk.
Even in a world where credit is hard to come by, your ability to buy a house after bankruptcy is largely dependent on your ability to afford the mortgage and proof that you can make the payments.
Stick to it and you’ll be moving into your new house in no time.