Will I Be Able To Buy A House If I File Bankruptcy?
Filing a bankruptcy and receiving a discharge in bankruptcy, whether Chapter 7, Chapter 11 or Chapter 13 does not create a barrier to home ownership if the individuals are otherwise able to become credit worthy in the future. The central premise of bankruptcy law in the United States is to give individuals a fresh start in their financial lives. Property acquired after a bankruptcy filing is not subject to the claims of pre bankruptcy filing creditors or the bankruptcy trustee acting on behalf of creditors.
Home ownership is almost everyone’s dream. Filing a bankruptcy does not mean a person’s financial ‘death’. Many people are able to get back on their feet and prosper after receiving a bankruptcy discharge. The crushing weight of old debt is off their shoulders. They are now, once again, free to work and earn and save money free from the lawsuits of past creditors.
Most of us need to obtain a mortgage in order to buy a home. The willingness of a company to lend you money depends in large part on how you have rehabilitated your creditworthiness after a bankruptcy filing. Many lenders use the Fair Isaacs credit scoring system. This is available to you at www.myfico.com. People with good credit get the best interest rates since they are at the lowest end of the credit risk. They are more likely to pay their debts and some one who has a lower credit score.
Generally the lower your FAIR Isaacs score, the higher the interest rate you will pay. You can help make up for this by making a larger down payment, buying a less expensive home, asking a family member to co sign the note and mortgage, asking family members for a gift of money to increase your down payment. At certain lower credit levels this will not work. Time and a responsible use of credit including paying on time in the required amounts should help improve your credit worthiness score.
After two years post bankruptcy, your credit score is no longer adversely affected by the bankruptcy filing. Many clients come back to our office after a bankruptcy filing with mortgage pre qualification letters in one hand and contracts to buy homes in the other hand. Imagine how good it makes everyone in our office feel when I hand someone the deed to their new home after having represented them in a bankruptcy proceeding!!
The mortgage lending industry is very competitive. There are ‘bankruptcy friendly’ lenders willing to consider mortgage applications from people with less than perfect credit. Some mortgage brokers and representatives even specialize in helping post bankruptcy borrowers to buy homes. Be sure that you understand exactly what the prospective lender has promised you before you part with any money for a loan application or a credit report. Loan fees, escrows for taxes and insurance and closing costs are expensive. A smart buyer shops around and compares prices and costs. Many mortgage companies are paid from your closing costs and a payment from the bank or other investor that buys the loan. If you don’t take their loan, they do not get paid. To guard against this they charge application and other fees.
Condo and unit owner association charges can also run up your closing costs. Plan ahead and be very careful to allocate extra money just in case. It is important to save a copy of your bankruptcy discharge. Most lenders may ask you for it.
If you have questions or would like to meet with me to discuss home ownership, bankruptcy or other legal matters please call our office.