Bankruptcy And Buying A House - Is It Smart To Buy A House After Bankruptcy?

Each year, millions of people file bankruptcy as a means of erasing their consumer debts. While this approach may relieve stress, a bankruptcy is damaging, and will hang over your head for the next ten years. Still, it is possible to overcome bankruptcy. The key is making smarter financial and credit decisions. With this said, some people choose to purchase a home after a bankruptcy. Here are a few pointers to consider when buying a home.

Each year, millions of people file bankruptcy as a means of erasing their consumer debts. While this approach may relieve stress, a bankruptcy is damaging, and will hang over your head for the next ten years. Still, it is possible to overcome bankruptcy. The key is making smarter financial and credit decisions. With this said, some people choose to purchase a home after a bankruptcy. Here are a few pointers to consider when buying a home.

Reasons to Delay the Buying Process after Bankruptcy

If you consult with mortgage or financial experts, they will likely discourage you from buying a home following a bankruptcy. After your bankruptcy is discharged, there is a black cloud that looms over your credit report.

When any prospective lender reviews your report, they will be notified of your recent or past bankruptcy. In some instances, this justifies an immediate denial. On the other hand, there are lenders eager to help you establish or rebuild your credit. Thus, they will approve a loan request. Nonetheless, the penalties are steep.

Higher mortgage rates can be anticipated when purchasing a home after bankruptcy, especially if you have not established other credit accounts. Mortgage lenders consider two factors: credit scores and credit reports.

Although a bankruptcy appears on your credit report, having a high credit score will increase your odds of getting a comparable rate. Unfortunately, if you buy immediately following a bankruptcy, you will not have the opportunity to boost your score.

Reasons to Buy a Home after Bankruptcy

Lenders will approve mortgage loan applications one day following a discharge. Therefore, it is possible to get a home after a bankruptcy. Buying a home is perfect for rebuilding credit. Moreover, it is the quickest way to increase your credit score.

After a bankruptcy, the average person has a credit score below 600. Good credit consist of credit scores 650 and above. Maintaining current mortgage payments will gradually increase your score. After two years of regular payments, you will have established a good payment history. Hence, you may qualify for a low rate refinancing, which may lower your mortgage payments.

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Does Moving Up Make Sense?

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These questions will help you decide whether you’re ready for a home that’s larger or in a more desirable location. If you answer yes to most of the questions, it’s a sign that you may be ready to move.

1. Have you built substantial equity in your current home? Look at your annual mortgage statement or call your lender to find out. Usually, you don’t build up much equity in the first few years of your mortgage, as monthly payments are mostly interest, but if you’ve owned your home for five or more years, you may have significant, unrealized gains.
2. Has your income or financial situation improved? If you’re making more money, you may be able to afford higher mortgage payments and cover the costs of moving.
3. Have you outgrown your neighborhood? The neighborhood you pick for your first home might not be the same neighborhood you want to settle down in for good. For example, you may have realized that you’d like to be closer to your job or live in a better school district.
4. Are there reasons why you can’t remodel or add on? Sometimes you can create a bigger home by adding a new room or building up. But if your property isn’t large enough, your municipality doesn’t allow it, or you’re simply not interested in remodeling, then moving to a bigger home may be your best option.
5. Are you comfortable moving in the current housing market? If your market is hot, your home may sell quickly and for top dollar, but the home you buy also will be more expensive. If your market is slow, finding a buyer may take longer, but you’ll have more selection and better pricing as you seek your new home.
6. Are interest rates attractive? A low rate not only helps you buy a larger home, but also makes it easier to find a buyer.

Short Sale Process Cut in Half or More, Freddie Mac Says

Short sales are getting much shorter, Freddie Mac says. The mortgage giant launched a Freddie Mac Standard Short Sale program on Nov. 1 that sought to speed up the short sale process and make it easier and more transparent. "We estimate that the time to complete a short sale will decrease by approximately 50 percent to 75 percent," as a result of the changes, writes Tracy Mooney, Freddie Mac’s EVP in a recent blog post.

Among the changes that took effect Nov. 1, 2012:

• Mortgage servicers have 30 days to make a decision on a short sale once they receive an application. If they need to negotiate with a third party, they have 30 additional days. A final decision on the short sale must be made within 60 days.
• Mortgage servicers are required to acknowledge they received the short sale application within three days of submission. Servicers must provide weekly status updates if they end up needing more time to review the application past the initial 30-day period.
• Mortgage servicers have authority now to approve short sales when qualifying financial hardships for home owners who are past due or current on their mortgage payments.
• Mortgage servicers are also now able to approve short sales without seeking a separate review by the mortgage insurance company.
• Following a short sale, home owners may be able to qualify for up to $3,000 in relocation assistance.

Source: “The Shorter Short Sale: Long on Borrower Benefits,” Freddie Mac Executive Perspectives Blog (Jan. 22, 2013)