How to Buy a Home After a Bankruptcy, Foreclosure, Or Short Sale
July 23rd, 2010
Having a bankruptcy, foreclosure, or short sale on your credit report creates great challenges when it comes to buying a home, but with time and hard work, it still is possible. Here’s how to overcome these challenges:
1. Mark your calendar accordingly:
A. If you filed Chapter 13 Bankruptcy, you may pursue owning a home 1 year after filing.
B. If you filed Chapter 7 Bankruptcy, you may pursue owning a home 2 years after your discharge date.
C. If you had a foreclosure or short sale, you may pursue home ownership 3 years from the date of the sheriff’s sale/auction or short sale on your previous property. The only exception to the three year rule is if you had what are called “documented extenuating circumstances” such as death, disability, or job loss. Even then, lenders determine your fate on a case by case basis. In my experience, the most time I’ve seen cut off is a year.
D. If you have a bankruptcy and a foreclosure, lenders will require you to wait until your sheriff’s sale/auction date is 3 years old.
2. Reestablish PERFECT credit. A. Pay ALL your bills on time. B. Understand there is no margin for error in the current credit environment. C. Check, clean up, and raise your credit scores to 620+ preferably 740+.
1. Go to annualcreditreport.com and see what is on your credit report.
2. Dispute errors and any accounts included in bankruptcy.
3. Fax in your bankruptcy schedules and discharge to the credit bureaus.
4. If information about your foreclosure or short sale is inaccurate, fax in your foreclosure documentation.
3. Evaluate your economic situation:
A. Is your employment situation stable or unstable?
B. How much house can you afford to buy (including taxes and insurance) and still keep your total debt to income ratio below 40%?
C. How much money do you need to save for a 3.5-5%+ downpayment?
4. Prepare 6-12 Months Prior to Purchasing a Home.
A. Monitor interest rates.
B. Choose a mortgage lender who does FHA or VA loans because these programs give you a great low fixed interest rate even with a bankruptcy, foreclosure, or short sale 2-3 years old.
C. Get pre-approved 1-3 months prior to purchasing.
D. Provide your bankruptcy paperwork, foreclosure, and short sale documents.
E. If you filed a Chapter 13 Bankruptcy, provide your pay history to the trustee.
F. Write a letter of explanation and provide documentation why your bankruptcy, foreclosure, or short sale occurred.
G. Pick at least 2 areas to look for homes.
H. Determine what your housing needs are i.e. number of bedrooms and baths, yard and garage size, fixer upper, etc.
I. Decide if you’re going to work with a realtor or pursue “for sale by owner.”
5. Find the Right Home for You!
A. Negotiate a fair purchase price.
B. Set a closing date after consulting with the sellers and your lender.
C. Provide your lender current paystubs and bank statements.
D. Have a home inspection done and be there when it’s done.
E. After closing, notify your creditors, family and friends about your new address.
F. Move in and enjoy your new home!
Paul Storm has facilitated the credit recovery of thousands of consumers during his decade in the finance industry, through his radio program “Credit 911″, national seminars/workshops, and as the author of “Finding Your Way Back: The Credit Recovery Road Map.” To learn more about Paul Storm go to http://www.credit911live.com
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Watch Kevin and Fred, Short Sale Specialists, on the Short Sale Power Hour. Video for Short Sale Specialists.
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Fred Weaver is a founding co-owner of Group 46:10. He has been working in the financing/real estate business for over 7 years. Fred began his real estate career by working for a large wholesale bank as a processor and rate/lock specialist for home mortgages. After 2 years in the business, Fred transferred from the banking side of home loans to the mortgage side. While on the mortgage side of financing, Fred gained experience originating mortgages and processing files for Morgan Capital of Arizona, Inc.
Kevin is a founding co-owner of Group 46:10. He began working in the real estate business in 2007 after spending 8 years working in the finance industry for companies such as Bank One, Green Tree Financial, & GE Capital.