How Bankruptcy Affects the Home Buyer

The last couple of years affected the lives of billions of people around the globe. For some, that meant losing their job. If you took a financial hit to your household income, you might have needed to declare bankruptcy. Afterward, you managed to pull yourself up, dust yourself off, and found a great job. In turn, you started looking at the possibility of buying an Inland Empire home. With rents going up, it seems to make the most sense. But you start to wonder how your bankruptcy may hinder your chances of purchasing a property of your own.

How Bankruptcy Affects the Home Buyer

How Long Must I Wait Before I Can Buy a Home?

One of the most often asked questions for a home buyer is how long do I have to wait after declaring bankruptcy before I am eligible to get a home loan? Factors for this vary. Typically, you must wait a minimum of two years. Even VA loans require a two-year waiting period. However, a conventional loan requires a two to four-year waiting period after bankruptcy discharge to even be considered eligible for applying for a mortgage loan. As time goes on and you put distance between you and your bankruptcy discharge, your score should improve significantly.

Time is Not the Only Factor

You also need to bring up your credit score. FHA loans require a score of at least 580 for a 3.5% down payment. However, if it falls below 580, you might still receive approval. You just need to increase your down payment significantly.

How to Help Increase Your Score While Waiting

Avoid late payments at all costs. Request a free credit report from AnnualCreditReport.com for each of the three credit reporting agencies. Check each for any mistakes. File a dispute with the appropriate agency if you find errors. Keep new credit to an absolute minimum. Instead of obtaining unsecured credit (such as credit cards or personal loans), apply for a secured card instead. These typically have lower interest rates and fees than an unsecured card. Why? Because your card is backed by your own money. This helps build your credit back up faster without loading you down with high rates and fees.

Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty