Is Buying a Home After Bankruptcy a Smart Idea?
By Sadiya Anjum
With the filing of bankruptcy, your life is far from over. People have to pick up the pieces and move on; but the important element is to learn from the mistakes made. After a bankruptcy one may doubt the advisability of buying a home. But if you have managed to achieve some form of stability in your income then you are almost ready to buy a home.
Obtaining a loan after a bankruptcy may have been a tough job in days gone by but today with subprime loans on the rise practically anyone can afford a home. Of course, the interest rates and terms you may be subjected to may not be too pleasant but there is always a way to work around these issues.
Firstly you must know that lenders consider your credit report and credit score before approving a loan. While your credit report may show a black mark (bankruptcy), your credit score can be improved with effort on your part. After a bankruptcy, learn to make payments on time and try to build up your credit score. Within a period of two years, a better credit score and a stable income will qualify you for lower interest rates and better terms.
Even if one considers buying a home immediately after a bankruptcy, there are scores of subprime lenders who will be willing to do business with you. In a situation like this, you may have to live with the higher interest rates and other difficult terms. But if you make payments on time, after your pre-penalty period comes to an end you have the option of refinancing with lower interest rates and better terms. This is provided you are diligent with your payments and improve your credit score.
Buying a home after bankruptcy is not just to satisfy your whims, it will actually help you improve your financial condition. The first way you stand to gain is the opportunity you now have to improve your credit score. By taking a loan and then making regular payments on time, you will slowly help improve your credit score.
Next you now have a ready source of funds in the form of your home equity. Equity can now be used to pay off certain debts or employed for investment, but make sure that you use it prudently and not land up risking your new home. Owning a home is also the gain of an asset which can help secure your future.
When considering home loans, do check to see if you qualify for a VA or FHA loan. Terms and interest rates of these loans are much kinder to those who are bankrupt. But the choice of owning a home has to be a realistic one. It is possible to obtain a loan but your present financial condition must allow you to make the required payments. In addition, make sure that your loan amount does not exceed what you can realistically afford or else you may as well prepare yourself to file another bankruptcy soon. With a realistic picture of your financial condition, you can consider buying a home.
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