For most people, a house is the largest purchase they will ever make. Buying a house is more than just a large purchase, it is often an investment, and for many, buying a house is symbolic. It is a milestone in an adult’s life, and for many couples, it is symbolic of their commitment to each other.
Filing for bankruptcy will not prevent you from buying a home, but it can have an impact on certain issues related to buying the home. These include whether you qualify for certain loan types and the interest rate you can lock in. If you are considering purchasing a home in the near future, discuss this with an experienced bankruptcy lawyer before you file your bankruptcy petition. A bankruptcy can be strategic, and your lawyer is best equipped to help you when he or she understands your “big picture.”
Your Lowered Credit Score Will Impact Your Chance of Qualifying for a Mortgage
There is no way around it, bankruptcy will decrease your credit score and it will be on your credit report for up to 10 years, depending on the chapter you file. This will impact whether you qualify for a mortgage and the interest rate you can secure.
Even if you can get a mortgage with your decreased credit score, pay close attention to what your monthly expenditures will be with your interest rate. The same property can be considerably more expensive for an individual with a lower credit score than it is for an individual with a higher one, sometimes to the point of making the property unattainable.
You Cannot Get Certain Loans at All
An FHA 203k loan is a popular way for home buyers to purchase homes they otherwise might not be able to afford to buy. With this type of loan, a buyer can purchase a property that needs a substantial amount of work and use the loan money to pay for renovations like a new roof, new HVAC system, and other repairs to bring the property up to code.
For buyers consider properties that need some repairs but anticipate spending less than $35,000 on renovations, a streamline 203k loan is available. However, an individual who filed for bankruptcy some time within the past three years cannot qualify for this type of loan. For a traditional 203k loan, the buyer can qualify if at least two years have passed since his or her debt was discharged.
It can Push the Purchase Off for Years
Your lowered credit score will shut you out of certain loan types, such as a 203k loan. If this is the case for you, do not panic. Rebuilding your credit will take time, but it is possible with careful budgeting and using the skills you learned from credit counseling.
For a prospective home buyer, this can mean waiting a few more years to purchase a home. Beyond the required waiting period after your discharge or dismissal, you could need a few years to rebuild your savings and become financially comfortable enough to commit to purchasing a home.
Work with an Experienced Itasca Bankruptcy Attorney
If you are considering filing for bankruptcy, first discuss your case with our team of experienced bankruptcy lawyers at Newland & Newland, LLP. Contact our firm today to schedule your initial consultation with us. We serve clients in the Arlington Heights, Palatine, Rolling Meadows, Libertyville, Mundelein, Buffalo Grove, Schaumburg, Elk Grove, and Itasca areas.
(image courtesy of Scott Webb)