Getting a Mortgage Loan After Filing for Bankruptcy
Are you ready to buy a home, post bankruptcy? Start by determining how much house you can afford. This is critical. You dont want to get into the same money squeeze as you were in before. Including principal, interest, taxes and insurance, its a pretty safe estimate that you can afford to pay a mortgage equal to 20% of your pretax income.
Lenders will often preapprove you for up to 28% of your pretax income, but youre best to avoid this temptation. Lets work out the numbers: with $50,000 in annual pretax income, your lender will likely approve you for a monthly mortgage payment of $1,150. Thats 28% of your monthly income, and it would allow you to qualify for a $150,000 mortgage. At 20% of your pretax income, however, your mortgage payment would be a more manageable $833. This would mean a $120,000 mortgage. This kind of thinking ensures that you leave yourself some available income for emergencies. Lets face it: the car breaks down; the kids need braces; and life often throws us a curve.
In general, once you know how much house your lender thinks you can afford, shop for houses that sell for about 15-20% less than the lenders estimate. This is another way to ensure that you are protecting your financial future.
When you talk to lenders about pre-approval, dont try to hide your bankruptcy. However, be sure to also show them the great job youve done rebuilding your credit in as short a time as possible. You have to remember that a Chapter 13 bankruptcy stays on your credit report for seven years, while a Chapter 7 bankruptcy stays on your credit report for 10 years. Its best for you to get used to handling questions regarding your bankruptcy with confidence and a straight-ahead approach.
When you apply for a mortgage after a bankruptcy, you wont generally qualify for the best rates. Typically, lenders will consider loaning you money again when it has been at least two years since you filed for bankruptcy and you've stayed current on your bills over that period. That has to be a critical piece in your building of a new financial stability.
One point of interest to keep in mind: A person in a Chapter 13 bankruptcy who is meeting the terms of repayment will have an easier time re-establishing credit than someone who discharged debts in a Chapter 7 bankruptcy.