There’s a common misconception that bankruptcy will kill your chances of getting a home loan. This isn’t true. In fact, surveys have shown that it’s possible to get a loan as quickly as 18 months after filing bankruptcy. Though that’s an exception rather than the rule, it’s not at all unreasonable to try and purchase a home two to three years after filing.
How do you go about doing it?
Verify Your Credit Report
Start by regularly checking your credit report. You’ll want to check your credit report about four times a year after bankruptcy to make sure everything gets settled correctly. The US government provides one credit report a year for free; the rest will cost around $15.
On your credit report, be on the lookout for items that should appear as settled in bankruptcy, but still show as owed, open or delinquent.
Contact the credit agencies and let them know of the mistakes. This is extremely, extremely common. Sometimes it’s just a lag in paperwork, but oftentimes if you don’t take care of it, it’ll just linger there and hurt your credit.
Watch your credit report carefully for the years proceeding a bankruptcy. Make sure no new accounts pop up and that all old account is closed.
Start Building Credit Immediately
You have two tools available to you to build credit, even if you have no credit rating whatsoever: secured credit and installment loans.
Secured credit cards allow you to use cash collateral. You give the bank a small amount of cash, say $1,000, which they’ll hold as security against the loan. You’ll then have a credit card with a $1,000 limit which you can use to build your credit.
You can also get installment loans, such as a car loan. In this case, you’ll have to pay most of the loan in cash. For example, if you’re buying a $5,000 pre-owned vehicle, you might offer to pay $3,500 in cash and just take a loan for the $1,500. Most dealers will be willing to do this, even if you have no credit.
These two methods allow you to start rebuilding your credit right away.
Prepare Your Finances for the Purchase
In order to buy a home with a bankruptcy on your report, you’ll need a slightly higher than average down payment. Start saving up today and try to get 20% to 30% of your down payment ready by the time you want to buy.
Get a steady job and preferably have your spouse do the same. The higher the household income, the better your chances.
If you start rebuilding your credit right after bankruptcy, correct any errors on your credit report and start getting financially healthy again, there’s no reason why you can’t own a home in as little as two or three years.
