Many Americans are afraid of bankruptcy. They are afraid of what other people will think of them, afraid that it’ll ruin their credit, and afraid that it’ll prevent them from doing important things in life, like buying a new home. However, bankruptcy is not the end of your financial life. If you properly manage your finances after bankruptcy, you can still convince banks to lend you the money you need to buy a home.
How to Buy a House After Bankruptcy
If you want to buy a home, but recently declared bankruptcy, there are a few things you need to know about dealing with banks to get a mortgage. First, banks often have application bans for people who recently finished the bankruptcy process. These bans can be up to four years long, depending on the lender, but each bank has a different requirement. Fannie Mae has a two-year minimum ban on those who have declared, and the FHA only has a one-year ban. This means patience is your friend when it comes to getting a mortgage after bankruptcy.
The next thing you should know about getting a mortgage after bankruptcy is that banks are going to take more care when considering your application. Some banks prefer people who filed Chapter 13 instead of Chapter 7, because Chapter 13 involves restructuring debt into one lower payment rather than dismissing the debt. Others will want to see that your financial behavior has changed since your bankruptcy. That means a credit record with prompt, on-time payments will speak volumes, so make sure you meet your financial obligations and check your credit reports before applying.
The bank may even want to know your circumstances when it comes to your bankruptcy. That can involve writing a letter explaining the tough times that forced your hand when it came time to file. Evidence to back up your story—such as medical bills, doctor’s notes, severance paperwork or a death certificate—will also help your application.
In the end, it’s important to understand that bankruptcy is not the end, but a new beginning. It can help stabilize your troubled finances and help you start again with a clean slate. You may have initial credit struggles after, but they will go away faster than you think, especially when you stay current on your new financial liabilities. To learn more about bankruptcy and how it can help you, keep following the Gates Law Group blog. We put our experience and knowledge at the hands of our clients.