There are several steps those who file for bankruptcy should take before applying for a mortgage to purchase a new home.
When debtors in Florida file for bankruptcy, they often feel the effects of this decision for months and years following the event. This is because during Chapter 7 bankruptcy, according to the Federal Trade Commission, all assets that are not considered exempt are sold to provide repayment to the creditors of anyone who files. During Chapter 13 bankruptcy, filers are required to abide by a repayment plan that allows them to use their future income to repay a portion of their debt. Despite the significant effects of filing consumer bankruptcy, many filers are anxious to purchase a house after the filing process concludes and want to do know how to do so.
Work on your credit
Those who want to purchase a home following bankruptcy should work on elevating their credit score by using a secured credit card or obtaining an installment loan. Secured credit cards give users the ability to make purchases up to the amount they have deposited with the bank. Comparatively, installment loans give filers the ability to make payments on a monthly basis until they repay the total amount.
While rebuilding their credit, former bankruptcy filers should only use a small portion of their debt and refrain from maxing out their credit cards. They should also be diligent about paying their bills on time and saving money.
Give it time
After filing for bankruptcy, those who underwent this legal process should have patience as they wait to purchase a new home. In some cases, waiting a year or two years can make a significant difference in terms of the interest rate acquired on the mortgage.
Applying for a mortgage
Once former bankruptcy filers determine that it is time for them to purchase a home, they should make sure they meet certain lending criteria. Generally speaking, lenders like to see that applicants have a good debt-to-income ratio, money in the bank and stable employment. Lenders also like to see a strong credit score and evidence of retirement plans or 401(k) assets.
Additionally, those applying for a mortgage following bankruptcy should be aware that their down payment can make a big difference in terms of whether they are approved for a mortgage and the interest rate they receive. While preparing to apply for a mortgage, home buyers should save as much as they can for this payment.
Reach out to an attorney
Those who are on the brink of filing for consumer bankruptcy in Florida may be concerned about their financial future as well as their ability to purchase a home once the filing process is complete. In this situation, debtors should contact an attorney in their area for legal guidance and assistance.