Buying a Home After Bankruptcy

First, wait two years. Getting a mortgage is possible during the first two years but be prepared to put down either 15 or 20% in cash. And you can expect to pay a much higher interest rate.

Wait two years, accumulate three or more high-quality credit references and you’ll do much better. And since a home mortgage is a long term investment - it would be much wiser to bide your time and not jump the gun.

Besides, after those first two years you’ll be eligible for a FHA or conventional mortgage under much better, even normal terms. Most people live very frugally those first 24 months, saving as much as they possibly can.

If you’ve been busy building your credit with a minimum of three good accounts, have paid your bills on time without fail, have stayed employed in one field and preferably in one job, have no negative entries in your credit files, haven’t run up your debts too much, and have sufficient income and a down payment - you should be able to land a very nice mortgage without too much trouble. If you’re having IRS problems, it’s best to enter into some sort of payment history at least six months before you apply for the mortgage.

This will show that you’re paying it off without any problems. But be very careful that the feds don’t damage your credit rating as any entry they cause could destroy your chances. You might want to check and see if there are any state ‘first time home buyer’ programs offered where you live. Today you can check the state’s official web site and/or call them and ask. Most states have a program or two but don’t advertise them very widely so you may stumble on a gem.

Then there is the land contract purchase. States have various attitudes about land contracts (ask a realtor to explain your state’s position) but if your credit is shot, it may be just the thing for you. Be extremely careful to make your payments on time. Especially during the first year, as any late payments may lose you your new home and your money. After the first one or two years your lender should be convinced of your reliability and be willing to convert your land contract into a conventional mortgage. Realtors are your best contact for this kind of deal. But you’ve got to find a creative one, one experienced enough to know the ropes.

If you can plop down 15-20% in cold hard cash, you can probably get a mortgage no matter your credit rating. But be warned that the bankers may ask you to prove where you got the money. A friend skimmed his cash tax free from his videotape rental store. When the banker asked about the money’s source, he was speechless. Be prepared to document every penny.

FHA assumable mortgages might work for you if you have the ‘cash to mortgage’ required to buy out the present owner’s equity. If you do, you can have a realtor locate suitable homes for you. If interest rates are high when you’re looking - you should find plenty of owners desperate to sell in this way as they need to more to some other area of the country.

Since a realtor really doesn’t have anything to do with your mortgage, they need not know that your past includes a bankruptcy. If you volunteer the information, they may run for the hills as nothing frustrates a realtor more than putting together a deal the buyer can’t qualify for. That’s why today realtors are requiring prospects to obtain mortgage pre-qualifications before they will work with them.

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