If you decide to declare Chapter 7 or Chapter 13 bankruptcy, it can stop your home buying plans dead in their tracks. On the other hand, if your credit was already hurting because of 30, 60, or 90-day lates, collections, and charge offs, then filing for bankruptcy may actually speed up the home buying process.
How is this possible? It’s simple: If a debtor is drowning in debt and their interest and penalties are spiraling out of control, it may be impossible for them to financially recover without winning the California lottery.
In this situation, when the debtor files bankruptcy, they will be able to restore their credit much faster than if they decided not to file bankruptcy. Continue reading to learn how to buy a house after bankruptcy – it’s easier than you might think.
First Comes the Bankruptcy Discharge
Once you file Chapter 7 or 13, it will take a little time to recover, and you will have to put your mind to it. It will take some time to rebuild your FICO score so you can apply for a mortgage, but with proper planning and preparation, it doesn’t have to take more than a couple of years from the bankruptcy discharge.
If you focus on reestablishing your credit, you may be signing the loan documents on that new home sooner than you expected. However, before you can even think about buying a home, your bankruptcy has to be discharged first.
If you are in the middle of bankruptcy and it hasn’t been discharged yet, no mortgage lender will be willing to accept your application.
Once your bankruptcy is discharged, you want to order a copy of your credit report. Scrutinize it for errors. If there are any debts that were included in the bankruptcy but are not reflected in the credit report, contact the credit reporting agency and have them correct the error.
In the meantime, check your credit report for any other errors and have them fixed right away. Everyone is entitled to one free copy of their credit report from Experian, Equifax, and TransUnion each year. If you notice an error, dispute it directly on the credit reporting agency’s website.
Say ‘Yes’ to Credit Cards
If you plan on swearing off credit cards after bankruptcy, think again. After bankruptcy, credit cards are your “best friend.” The absolute, fastest way to rebuild one’s credit after bankruptcy is to show creditors that they can trust you to pay back the money you borrow. You can accomplish this with credit cards, including secured cards, and installment loans.
Of course, you don’t want to go and run up new debt. You’re better off only charging %10 or less on these cards and paying them off in full each month.
Tips to rebuild your credit:
- Get credit cards, but shop out for the best deals online.
- Do not max out your credit cards, only use a small portion of your available credit.
- Never use too much of your credit at once.
- Pay your credit cards early.
- Pay all of your bills early or on time.
- Stay at the same job for a while – it makes you look more stable.
- If you have any tax liens, remove them.
Generally, bankruptcy filers should wait at least 24 months after their bankruptcy discharge to buy a home. You may be able to get a mortgage sooner than that, however, you may not get a decent interest rate. Usually, the interest rates are more attractive after the bankruptcy discharge is two-years-old.