Declaring bankruptcy can give you a fresh financial start, but that black mark on your credit report can really make it difficult to get any sort of loan, especially a mortgage, which can run hundreds of thousands of dollars. Lenders do not like dealing with people who have a history of not being able to pay their bills. But even though a bankruptcy will remain on your credit report for several years, the impact does fade over time. It is possible to still get financing for a home, it just may be a bit more challenging. Here are some tips for navigating the search for a home after this financial hiccup.
While you may be able to secure a mortgage sooner, many financial experts recommend waiting at least two years until after your debts were discharged before looking for a loan. At this point, the effects of the bankruptcy on your credit score will have waned a bit and it is a nice solid chunk of time to demonstrate responsible financial behavior. You will get a better interest rate than if you applied fora mortgage sooner and considering the length of time and the amount of money involved in this transaction, it is a good idea to wait until you will qualify for a better interest rate; even small percentages can translate to tens or hundreds of thousands of dollars less. If you filed Chapter 13, which involves partial repayments, you may be able to qualify for a more attractive interest rate sooner since you did not fully discharge your debts and you did attempt to make good on your financial obligations.
Reestablish Responsible Credit Use
While getting a credit card may seem like the worst idea ever for someone who just filed for bankruptcy, you need to work on reestablishing a history of responsible credit use since you are planning on applying for the biggest loan you will probably ever take out in your life. You may think you will have a hard time getting a credit card, but you will likely be inundated with offers from lenders who specialize in secured credit cards (where you deposit a certain amount of money with the issuing bank) or unsecured credit cards with high interest rates, for people with bad credit. Consider getting one or two cards and use them frequently in lieu of cash, then make sure to pay off the entire balance each and every month on time. Again, use them in lieu of cash that you have to spend, so you can pay back automatically, not for things you cannot afford. You do not want to carry balances. You might also consider taking out an installment loan for your next big purchase, such as a car, even if the interest rate is a bit too high for your liking. Timely payments on installment loans can give your credit a nice boost.
Alternatives to a Mortgage
If your credit situation is making it hard to get a traditional mortgage, you may have some alternatives. One is a hard money loan, which relies less on your income and other traditional factors in evaluating creditworthiness for standard mortgages. These loans do not come from banks but various private sources of income so there is more flexibility in qualifying and the terms of the loan. These loans typically have higher interest rates and lending periods, however. If considering a hard money loan, it is important to do your research on the various lenders to make sure you choose a reputable provider.