If you recently received a discharge through Chapter 7 bankruptcy and are now in good financial shape, you might want to start considering buying a house. Through your bankruptcy, you probably eliminated all the debt you owed, and you may now be in the process of saving up some money. As you start planning to buy a house after bankruptcy, there are three important things to know.
There Is a Waiting Period
To buy a home, you must get a loan, and there are a variety of different types of loan programs to choose from. Each type has a different waiting-period restriction, though, and you will need to look into these before you start looking for a house. For example, to get a conventional loan, you will need to wait four years after filing. To get other types of loans, such as a FHA loan, you only need to wait two years.
You Will Need a Down Payment
No matter which loan program you choose, it is likely you will need a down payment to buy the house. It is best if you can come up with 20% of the purchase price; however, this is not always necessary. You might be able to buy a house by putting as little as 3% of the purchase price down on it.
If your bankruptcy eliminated a lot of debt you owed, you might be in a position that allows you to save a decent amount of money each month. If possible, save as much as you can before you begin shopping for homes, and base your budget on the amount of money you have for your down payment. For example, if you have $20,000 saved up, you might want to look for a home that costs around $100,000. The money you have would be enough to put a 20% down payment on the home when you purchase it.
You Might Not Qualify for the Best Rate
Interest rates on mortgages are determined by a lot of factors, but credit score is a big one. Bankruptcy can bring a credit score down, which may end up causing you to have a higher interest rate than you hoped for, but this doesn't mean you will always be stuck with that rate.
If you find a home you really like and end up purchasing it, in a few years you might be able to refinance to a lower rate if you are able to get your credit score up high enough.
Buying a home is a big event and can be tricky for a person who just filed for bankruptcy. If you have any questions about this, talk to your lender and hire a real-estate agent to help you find homes for sale within your price range.