How to Buy a House After Chapter 7 Bankruptcy
- 1). Wait until a few years have passed since your bankruptcy. The more recently you filed bankruptcy, the more difficult it is to get a mortgage. In the early 2000s, sub-prime lending practices made it easy for people with bad credit, including prior bankruptcies, to get a mortgage. However, this situation led to a high number of defaults when people couldn't afford their payments. Since then, banks have restricted the standards for qualifying for mortgages, making it difficult for people to get a mortgage after a recent bankruptcy.
- 2). Accumulate a larger down payment. Regardless of bankruptcy history, the more money you have as a down payment, the better your chances of getting a loan. Although it was common at one time to get loans with very little or even no money down, now most borrowers need a minimum of 10 percent down. For borrowers with a history of bankruptcy, a down payment of 20 percent will further increase the odds of qualifying for a mortgage.
- 3). Build up your credit before applying for a loan. After filing bankruptcy, the most important thing you can do is to reestablish credit as soon as possible and show that you can handle debt repayment responsibly. If you cannot get any credit at first, a good way to start is to get a secured card for which you deposit a certain amount of money, which becomes your credit limit. As your credit improves, get unsecured credit cards and make sure to make payments regularly and to only use about 30 percent of your available credit.
- 4). Consider alternate forms of financing, such as a land contract. A land contract is a nontraditional form of home financing. Sellers finance the cost of the home, usually while allowing the buyer to live in the house and pay rent, some or all of which is applied to the cost of the house. Buyers do not usually have to come up with a high down payment, and credit history may not matter as much as in conventional financing. However, if the buyer defaults on payments on a land contract, he usually loses his claim to the property and all the money he has already paid.
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