Can I Buy a House After Bankruptcy?

It may seem impossible…but you CAN own your own home after declaring bankruptcy. However, if home ownership is your goal, you will want to start soon and work hard to repair your finances.

Here are 5 steps you should take to start your journey from bankruptcy to home sweet home.

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  1. Organize your Personal Finances

As the dust settles from a bankruptcy filing, it is important to take stock of where your finances are now that some (or all) of your debts have been discharged.

Debt & Credit

First, be sure to understand what and how much you may still owe and make a reasonable plan to continue paying off those debts. At this point, you will also want to access your credit report to see where you are starting. As you repair your finances, periodically check your credit score for mistakes so you can correct them as soon as possible. Also, watching your credit improve will be encouraging as you work towards a home of your own!

Build a Budget

Now that you know where you’re starting, assess your income against your outgoing expenses. Trim where you can and make sure to pay all bills on time, every month. This will help you continue to repair your credit score. 

Use Credit…Carefully

At this time you may also consider using a credit card to pay monthly bills, or to cover a smaller expense like gas for your car. Using and paying off a credit card is another way to gradually repair your credit. Just ensure that you treat your credit card like you would cash, and don’t spend what you can’t pay off each month.

  1. Save, Save, Save…

Now that your debts are under control, it is time to start saving. Especially if your goal is to own a home, you will need to have money in the bank to make it happen. However, be careful not to get overwhelmed – no matter how little you are able to spare, just be sure to put something away each month. To purchase a home, you will want to aim to save 20% of the cost on the home. This may seem like a lot of money, and it is true you can purchase a home with a smaller down payment, but putting down 20% will save you money on things like mortgage insurance and monthly payments in the long run.

  1. …and Save Some More!

Unfortunately, after putting down 20% and closing on the home, there will be many more costs in your future as a homeowner. Unlike renters, homeowners are responsible for all repair costs, maintenance, and upgrades. Be sure to calculate what you can afford to pay each month towards home costs (on top of a mortgage payment), then consider this budget as you choose your future abode. Once you find a home you love, have a professional home inspector carefully look over the house and property to alert you of any potential future repair needs.

4. Gather the Necessary Documents

After going through bankruptcy, you are probably pretty good at organizing paperwork. While not as rigorous as bankruptcy, you will need to gather plenty of documentation before you can apply for a mortgage.

Be sure to check with an expert on the exact paperwork you should gather before you apply for a loan.

Here is a list of the type of documentation you may need:

  • Credit card, loan, and bank statements
  • Records of investments
  • Tax paperwork
  • Insurance documentation
  • Bankruptcy petition and other legal documents
  • Employment documentation, like pay stubs
  • Medical bills, particularly if you’ve dealt with large expenses
  1. Get the Right Mortgage

As you shop for the home of your dreams, don’t forget to shop around for the mortgage that’s best for you.

Because you’ve filed for bankruptcy, you can expect to pay a higher interest rate. When choosing between types of loans, you can go with a private lender or government loan. Government loans tend to be more flexible in their requirements, including for income and down payment amounts. However, these loans are restrictive in that they are usually intended for people who will make this their primary residence, rather than renting or flipping the home.

Be sure to also explore your options for type of interest rate – you can choose between a fixed- or adjustable-rate mortgage. Finally, be prepared with extra money saved for the fees and expenses associated with purchasing and owning a home. The last thing you want after experiencing bankruptcy and purchasing your own home is to become buried under interest, fees, and expenses you cannot manage.

Yes, you CAN rebuild your financial life and own a home after bankruptcy. For questions or to discuss your particular situation, call our office, email us, or fill out the form on our contact page to schedule an appointment for a free consultation.