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Tips for First-Time Home Buyers After Bankruptcy and Credit Repair

Qualifying for a Mortgage After Bankruptcy

Lenders understand that after your Chapter 7 or Chapter 13 bankruptcy, you have less debt to pay and more money to pay a mortgage. In most cases, you will have to wait for two years from the date of a Chapter 7 bankruptcy discharge date. Meanwhile, a Chapter 13 bankruptcy, which is a three to a five-year repayment plan, after 12 months of on-time bankruptcy plan payments, you can get an FHA loan.

Most people don’t take advantage of bankruptcy options because they think it still takes so much more time to qualify for a mortgage after a bankruptcy case. You too can be one of the many home buyers after bankruptcy.

Learn About Your Credit After Bankruptcy

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Saving For a Mortgage Downpayment After Bankruptcy

While many people still put down 20 percent, there are many lenders who will approve mortgages with a 3 percent downpayment on a home. There are first-time homebuyer programs that allow new mortgages for 3 percent down.  When you take advantage of a low or no money down mortgage, you might need to pay for mortgage insurance, and will affect your monthly payments.

Some of the loans that work for people who want a new home but do not have a 20 percent downpayment include conventional mortgages, FHA loans, and VA loans. These are great for home buyers after bankruptcy.

A conventional mortgage is a good option for homeowners because the costs can be lower than other options when you have a high enough credit score, of at least 620 and a debt-to-income ratio of 50 percent or less. Note that these are general criteria and results may vary.

An FHA loan is insured by the Federal Housing Administration, a part of the U.S. Department of Housing Development. An FHA loan may be available for buyers with a credit score of 580. A mortgage insurance premium (MPI) is commonly required and can be paid upfront or it could be part of your monthly mortgage payments.

A VA loan is backed by the U.S. Department of Veterans Affairs and can be secured without a down payment. VA requirements for loans can include a higher credit score and an updated home appraisal.

Mortgage Application Tips to Get the Best Deals After Bankruptcy

Find a mortgage broker who can run your credit and tell you where you are now, and where you need to be financially to be approved for a mortgage. Being approved for a mortgage requires your application to satisfy several criteria. Your mortgage application might be graded differently by a variety of lenders and your broker should know which company may offer the best deals to home buyers after bankruptcy.

Once you have a copy of your credit score you have a baseline for improvement. You can take advantage of one of many credit repair programs to increase your score before applying for a mortgage. It is important to not assume any new credit obligations within a few months of your credit application because new account activity can reduce your credit score.

One of the things you will learn about credit scores is that the percentage of credit used is very important to a good score. If you have a credit card with a limit of $1,000, your credit score reports highest when you only use 20 percent of your limit at the end of your monthly billing cycle. A best practice is paying your credit card down right before the end of the monthly cycle so you owe the least amount at that time of the month that is reported to the credit bureaus.

How Much Can You Afford Without Drowning in Mortgage Debt

People who recover from money problems can rebuild their finances and credit by controlling their spending. When considering applying for a new mortgage, it is important to figure out how much you can afford every month without falling behind. For example, an unexpected car repair or medical bills can make an expensive mortgage payment difficult.

DaveRamsey.com: Don’t Be House Poor, Dave Recommends that your monthly mortgage payment be 25 percent or less than your take-home pay.

Consider what you really need in a new home and how much space is necessary for you and your family. A home in an established neighborhood with good construction can cost less than a new construction home. Affordability is important and you are more likely to feel financially stable when you have an affordable monthly mortgage payment, like many home buyers after bankruptcy.

Research Communities and Neighborhoods that Fit Your Needs

What are your top priorities in a new home and community? You and your family have several needs that include a good commute, good schools, and a safe place to live with plenty of amenities. Every family has a list of needs and a list of wants when looking at buying a new home. Once you narrow down the best communities and find a few neighborhoods that fit your family, it is time to start going to open houses.

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Attending open houses can help you get ideas about what people have done to update houses and add features such as a patio, hot tub, or a pool. Especially if you are considering homes built several decades ago, you might notice how some owners removed walls and remodeled older homes to make them more open and attractive to buyers. The cost of some minor home remodeling and construction can make buying an older home in a settled neighborhood more attractive to home buyers after bankruptcy.

Be Prepared for Closing Costs and Expenses After Moving Into A New Home

Closing costs could be 2 to 5 percent of the loan amount for your new home. Your realtor can help you with opportunities to negotiate with the seller to cover some of the closing costs if there are reasons to reduce the selling price and a closing costs compromise is an option.

People buying new homes should be prepared for the cost of adding necessary furnishings, appliances, and updated fixtures. For example, if you buy a new home and want window treatments and other fixtures, the costs can add up quickly. This is another reason that an older home that already has all you need might be an attractive option.

Chicago Bankruptcy Attorney Joseph Wrobel Can Get You a Fresh Start So You Can Rebuild Credit and Save Money to Be Among Many Home Buyers After Bankruptcy.