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.
