If you’ve decided to file Chapter 7 or Chapter 13 bankruptcy, you may be wondering if there’s any way you’ll be able to buy a home before the bankruptcy falls off your credit. We have good news for you –it is possible!
Once you file for bankruptcy, it’s going to take some time to build up your credit enough to apply for an auto loan or a mortgage on a home. However, with patience, financial planning and discipline, you may be able to get a home loan much sooner than you expected.
The bankruptcy discharge comes first.
First, the bankruptcy has be discharged. If you are still in the process, then there’s nothing you can do, you have to wait it out. Once the bankruptcy is discharged, you want to pour over your credit report and scrutinize every detail.
If there are debts that were included in the bankruptcy, but aren’t showing it, be sure to have the credit reporting agency correct it. If there are debts that have been paid, but it’s not being reported, see to it that the credit reporting agency gets the accounts updated.
You’re entitled to one free credit report a year from Equifax, Experian and TransUnion. If you find any errors, you want to dispute them online with each respective agency.
Don’t shun credit cards or installment loans.
If you want to get approved for a mortgage in the near future, you must show lenders that you’re a good borrower. To do that, you’ll need to slowly rebuild your credit. While your first instinct may be to shun credit cards or installment loans, after a bankruptcy they are your best friend.
The fastest way to rebuild your FICO score after a bankruptcy is to show creditors that you can be trusted to pay back the money you owe them. You can do this by getting secured credit cards, credit cards (shop for competitive rates online) or installment loans, such as a car or student loan.
Tips for preparing your credit for a home loan.
- Only use a small portion of your credit.
- Don’t max out your credit cards.
- Build your credit with early or on-time payments.
- When you can, pay more than the monthly minimum.
- Pay all bills on time.
- Stay at the same job for a good period of time.
- Be sure to remove any outstanding tax liens.
Wait at least 24 months before applying.
Here’s where the patience comes in: You should wait at least two years after the bankruptcy discharge before applying for a mortgage.
While you may be able to get a mortgage sooner, the interest rates won’t be as low as they would be if you waited two years. Since you could be paying the mortgage interest for 30 years, it’ll be more cost effective to wait for an attractive interest rate.