From Bankruptcy to Home Owner

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From Bankruptcy to Home Owner
By Joseph Mclaughlin

If you have filed for bankruptcy in the past and are now looking to get a home, you won't have the easy time that you possibly did before the bankruptcy. Bankruptcies stay on your credit report for 10 years, and many lenders will turn you away because of that. You will not be able to get a new home mortgage for at least two years after the bankruptcy is discharged, so if you lost your home you will have to rent during that time.

If you are in Chapter 11 bankruptcy currently (meaning you are making payments) and you have been paying against it for at least one year, you might be able to get a refinance mortgage (if you did not lose your house) that would pay off the bankruptcy entirely.

No matter what, if you have declared bankruptcy in the last 10 years, when you do find a lender willing to take a chance on you-and you will, because lenders do what they do in order to make money-you will have to pay a higher interest rate than the best available rates. It might seem ironic to you that since you have defaulted on loans before that now you will have to take an even higher interest rate, but interest rates are calculated on risk-and you have proven yourself to be a higher than average financial risk in the eyes of lenders.

Still, many people believe that they are no longer going to be able to get mortgages after a bankruptcy; this is, clearly, not true. You just have to be willing to accept the higher interest rate, at least for now (if you get a mortgage, you make all of your payments on time, and a couple of years later the bankruptcy comes off your credit report, you can then refinance into a lower interest rate). You should also watch out for a few other things:

• You will not have as much flexibility in getting different types of loans as you may have before. Depending on your overall credit rating, which a bankruptcy severely harms, you will have to pay a certain amount of money down against the price of the house; if you can't pay it, you won't get the mortgage.



• You will probably have to take a sub-prime loan. In order to get the interest rate down, you will have to pay points. Some brokers may ask you to pay five or six points. This is not illegal, and it will buy down your interest rate, but these up-front costs could reduce your bank account enough to where you have problems paying your bills. Most sub-prime mortgages demand a minimum of three points.



• Beware of pre-payment penalties. Most sub-prime loans have these. Also, beware of any unscrupulous brokers who take unfair advantage of sub-prime risks like you: most of them won't, but there are always a couple of bad apples, and you're the type of borrower they tend to target since you're in some dire straits financially.

Bankruptcy does not mean your borrowing life is over. It just means you have to make some adjustments to your expectations.

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