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Home Loans After Bankruptcy

   

HOME LOANS AFTER BANKRUPTCY

CREDIT ELIGIBILITY AFTER BANKRUPTCY

Filing for bankruptcy is the most dreadful financial nightmare for everybody. Its the most humiliating and embarrassing situation to declare to the world that you have bungled your finances. And its 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.

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