Buying A Home After Bankruptcy

If you have gone through bankruptcy, you might think you will never be able to own your own home again.

If you have gone through bankruptcy, you might think you will never be able to own your own home again. Fortunately you are mistaken. Here is how to buy a home, and some pitfalls to watch out for.

Since a bankruptcy stays on your credit report for seven to ten years, you will have difficulty getting most lenders to give you a mortgage in the first year or two after the bankruptcy. The good news is that some lenders have special programs for people who have undergone bankruptcy. You may be able to get a mortgage from these lenders two years after bankruptcy if you have kept your credit clean since the bankruptcy. You may even be able to get an interest rate that is comparable to that given to someone who has never declared bankruptcy. A lot will depend on the reason for your bankruptcy. A lender is more likely to take a chance on you if you went through bankruptcy because of a catastrophic event such as an illness or a divorce than if you underwent bankruptcy because of chronic overspending.

Even if you cannot get a mortgage quite that quickly, you might be able to get one before your bankruptcy is removed from your credit report. If you are willing to pay a larger down payment than is usual, a lender might be more willing to take a chance on you. If you agree to pay a higher interest rate than most people currently pay, a bank might be more willing to lend you money.

Beware of lenders who offer you a mortgage at much higher rates than the average. You should only have to pay a maximum of two or three percent more in interest. Any higher rate than that is a sign that the lender is probably unscrupulous. Also, do not agree to pay exorbitant application and processing fees to a lender. There is no reason that your application should cost more to process than anyone else's.

If you cannot get a conventional lender to grant you a mortgage, you can try to finance your home through a private lender. Someone trying to sell his house himself might be willing to finance the purchase, especially if he has had few other offers on the house. The owner might want you to put down a large down payment if he agrees to finance the house. If you do not have a large down payment, you may be able to persuade the owner to let you buy the house through a lease-purchase arrangement. This is like renting the house, except that the rent is higher than it would. You will make an option payment, which insures your right to buy the house at the end of an agreed-upon period. The option payment is usually much smaller than the down payment for a conventional mortgage. The extra rent goes toward a down payment on the house. After a period of time, usually two to five years, you can exercise your option to buy the house. You must then obtain a conventional mortgage to pay the owner the rest of the sale price. If you cannot qualify for a mortgage, you lose your option to buy the house and forfeit the option payment.

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