Many California residents fear bankruptcy and the stigma it holds. However, when you’re struggling with debts and unable to pay some or all of them, it can be a lifesaver. It’s even possible to buy a home after bankruptcy; this is what you need to know and the steps to take.
Obtaining a home loan after bankruptcy
Life after bankruptcy can include home ownership. Depending on your debt, financial situation and ability to pay your creditors, you might file for Chapter 7 or Chapter 13 bankruptcy. With Chapter 7, you have to wait for two to four years before you can apply for a mortgage. If you filed under Chapter 13, you can apply immediately after you repay over your three- or five-year repayment plan and your remaining debt has been discharged.
Bankruptcy and preparing for home ownership
There are things you can do after you have filed for bankruptcy but before you’ve applied for a mortgage to buy a home. Naturally, your score will decline after a bankruptcy filing, which means you have to work to rebuild your credit. Pay all your bills on time and in full and periodically obtain your credit report to keep tabs on your score. You can also check for errors in your report; if you see any, immediately report them to the credit bureaus to be fixed.
If you must borrow, only take out a loan for the amount you need and don’t go over as it can hurt you more financially. Be smart when using your existing credit cards and only spend within 30% of your total credit utilization ratio.
Research several different lenders for a mortgage and look for the best terms and rates for your budget and credit situation. You may also want to look into a first-time homebuyer program; depending on the circumstances, you might qualify.
With responsible financial habits, you can work toward buying a home. It takes time after bankruptcy but can be done.