CREDIT
ELIGIBILITY AFTER BANKRUPTCY
Filing
for bankruptcy is the most dreadful financial nightmare for
everybody. It's the most humiliating and embarrassing situation
to declare to the world that you have bungled your finances.
And it's true that the fact of your having filed for bankruptcy
remains on your credit report for 10 years. However, this does
not imply that you cannot get credit till the customary 10 year
period elapses. Loan experts assure that bankruptcy does not
exactly make you a 'financial untouchable' forever. No doubt
your credit rating falls miserably and you might have a tough
time convincing the prospective lenders that you are still a
reliable creditor; but bankruptcy does no longer sound a death
knell to your future credit worthiness.
Gone
are the days when bankrupts had to forego any hope of obtaining
loans at reasonable rates of interest without shelling out princely
sums towards down payment. Surveys reveal that bankruptcies
are mounting up year after year with millions of people filing
for bankruptcy for some reason or the other.
As
against the popular presumption irresponsibility need not be the
only reason for going bankrupt; it could be sudden termination
of employment or unanticipated/uninsured medical emergency. Even
if you were imprudent with finances and accumulated huge debts,
as things stand today, you will definitely get another chance
to start with a clean slate provided you take few precautions
and plan well. There are many programs and lenders which/who especially
cater to people who had recently been discharged from bankruptcy.
It means buying a house through financial assistance after bankruptcy
need not be a distant and unattainable dream.
PLANNING
HOME
LOANS AFTER BANKRUPTCY
As
said earlier, filing for bankruptcy and obtaining a house loan
are no longer reciprocally exclusive. Experts say that two years
after obtaining bankruptcy discharge you will be eligible to apply
for a house loan on terms which are on par with a person who has
not filed for bankruptcy. Your lender should have no qualms about
approving your house loan application since the souse serves as
the collateral.
When
to Apply for a
HOME LOANS AFTER BANKRUPTCY
There
are lenders who would be ready to give you a house loan as soon
as on the next day of your being discharged from bankruptcy; whereas
some lenders may ask for a reasonable interval before granting
you a house loan after bankruptcy. Since house prices are forever
on the raise every day counts; also, the prevailing low mortgage
rates urge many people to apply for the loan at the earliest.
However,
loan experts advise that despite the temptations the prudent choice
would be to wait for a minimum period of two years. During this
crucial period you should make the best efforts to develop a healthy
credit record which helps you to qualify for lesser down payment
and competitive rates of interest. After the prescribed two year
interlude you will have a better prospect to get normal terms
and conditions. You may even get 100 per cent finance for the
house.
If
you get impatient and apply immediately you may not be able to
take the best advantage of prevailing lower interest rates. The
lender will not have much confidence on your creditworthiness
immediately after bankruptcy and is more likely to demand a hefty
down payment and charge exorbitant rates of interest. Two years
is considered ideal waiting period but it is possible to get reasonable
terms even after one year if you can prove to the lender that
you built flawless credit history in that past one year.
Building
New Credit History and Improving the Credit Scores
Some
people mistakenly assume that since their past bad credit is completely
erased it should be very easy for them to get a house loan immediately
after bankruptcy. The truth is your credit rating is abysmally
low after bankruptcy which hinders any chance of even qualifying
for a loan. Bankruptcy only offers you another opportunity to
rectify past mistakes and start again. You have the total responsibility
of re-building your credit rating.
During
the prescribed two year period, you should establish new credit
relationships and try to improve your credit ratings. Quite a
few banks provide secured credit cards. You need to deposit a
fixed amount of money in the bank account every month; you are
allowed to use your credit card only up to that limit. It helps
you to control your credit transactions.
Taking
care never to delay or default on the payments is the best way
of improving your credit rating. You must keep a close eye on
the credit report as it reflects your good or bad payment history.
Make sure that there are no misrepresentations in the credit report;
you wouldn't want your credit rating to suffer due to other people's
clerical mistakes. If you can prove to the lender that you have
improved your credit rating since bankruptcy and that you are
no longer a risky candidate your chances of being approved for
the home loan are rather bright.
Amount
of Down Payment
A
large down payment is not always compulsory to qualify for a house
loan. If you can manage a credit rating of around 580 to 600 you
can get 100 per cent financing even though it's been less than
two years since your bankruptcy. If obtaining such impressive
rating in such a short time is not possible down payment is unavoidable.
The
amount of down payment you can make definitely influences the
time it takes to apply for a house loan. If you can make a substantial
down payment quite a few lenders will be favorably disposed towards
your application irrespective of the time lapsed since bankruptcy.
A large down payment assures the lender at least a partial return
on investment if foreclosure becomes inevitable.
But
a person recently discharged from bankruptcy cannot be expected
to have huge cash reserves. However, it does not mean that you
have to wait to build your capital base before applying for house
loan. There are other ways of raising money such as taking a personal
loan, borrowing from friends or relatives or encashing retirement
plans like 401K etc. There are specialized programs such as Neighborhood
Gold that assist with down payment obligations. Since the lender
is entitled to know your source of money you must reveal the fact
that you borrowed and give the necessary details.
There
are zero percent down loan products which are available even for
recent bankrupt discharges. Here you don't have to make any down
payment. But you should expect steep rates of interest.
Steady
Source of Income
When
a recent bankrupt discharge applies for home loan lenders primarily
look for two assurances - sizeable down payment and reliable source
of income. You have to prove to the lender that you have a regular
and reliable source of income that assures timely payments. If
you are employed with reasonable salary and have been in the present
job for a considerable time - longer the better since it indicates
stability - you are more likely to get better terms. Loan experts
feel that people in regular employment have an edge over the self-employed
in this regard since it is difficult to show fixed income in the
latter case. Usually self-employed people are subject to either
a larger down payment or a higher interest.
Sub
Prime Lenders
Borrowing
immediately after bankruptcy is not easy. Many would hesitate
to lend you even the smallest amount. However, there are other
options. Usually traditional lending agencies may not consider
people with bad credit history a safe bet; but sub prime lenders
specialize in catering to such people. Your past does not matter
to them. They usually charge affordable fees since the people
who come to them have a history of battered finances. But remember
that there's no dearth of predatory and immoral lenders. You ought
to be cautious and ensure the credentials of the sub prime lender
before closing the deal.
Loan
experts advise that undoubtedly the lenders would expect you to
pay for past sins by charging higher rates of interest. But there's
absolutely no need to accept the first lender who accepts your
loan application. You should obtain the rate quotations from as
many lenders as possible, compare the rates and then opt for the
best arrangement. Just because of your poor credit history there's
absolutely no need to be embarrassed or frightened to negotiate
with the prospective lenders about the rates of interest. Since
the past mistakes, committed knowingly or unknowingly, ended up
in bankruptcy you would definitely want to be more cautious this
time. The solution is to take expert advice and plan carefully.
