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12-23-2012 at 4:11 PM
PandaMom06
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PandaMom06 is not online. Last active: 06-05-2013, 8:47 PMBronze

Buying a house after bankrupcy and bad credit.

I'm usually a lurker however I'm seeking advice. My DH and I accrued a lot of debt and a couple years ago decided to file for bankrupcy. It was a Chapter 7. Looking back now we would not have done that however it is to late now!

We've had some medical bills go into collections since and are about to have everything paid off. By February we will be paying off all of the collections we have as well as all of our credit cards. We will be debt free, yay! We will then begin to start saving for a down payment on a home. We plan to save for about 2 years. We would like to have $10-$20,000 at the time of purchase.

The question I have is, is this even possible? To be able to raise our credit scores and have someone approve us for a mortgage. Should we expect to have to wait 5-7 years or if they see our debts paid off and our score comes up will that be enough? I'm concerned that on our credit report it shows our bankrupcy (of course) and the items that went into collections. The dates they are supposed to drop from our report is not for quite awhile.


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12-23-2012 at 4:17 PM
MommyLiber...
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MommyLiberty5013 is not online. Last active: 06-19-2013, 2:51 PMSilver

It's too hard to tell. Your plan to pay off debts, save for a DP and work up your credit scores is awesome even if you don't emd up buying a home.

The bankruptcy will appear on your reports for years and that will probably be a big deterant for MOST lenders.

You may be able to buy with a mortgage, but will have to have a penalty of a higher interest rate since the lender would consider you a riskier customer.

The only way to know for now is to research lenders that do help customers with prior negative information on their credit reports. And when the time comes to do an applicatuion and see if it gets approved or not.

If it does - great! If not, rent for a few more years and then try to reapply.

Don't feel rushed, the housing market is still tanked - prices will be low for a looong time with tons of options on the market!

 
12-23-2012 at 9:37 PM
vpine
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vpine is not online. Last active: 06-19-2013, 10:13 AMSilver

I filed for bankruptcy (discharged July 2010) and closed on house Oct 2012. For FHA loans, you have to wait two yrs after bankruptcy, they will ask for the discharge letter and list of creditors that were filed in bankruptcy case when you're submitting all the documents for loan. After bankruptcy is when the process of cleaning credit score is needed, they will not like seeing more debt or low credit scores or your debt already in collections, they look for financial responsibility basically. I was able to raise my score in those 2 yrs by getting a television from Conns first and making timely payments. I received a ton of credit card offers in mail that had $200-300 limits with $35 annual fees which I opened two and made timely payments each month, my limits were increased, etc.  I made sure to have NO credit card debt or balances when I applied for FHA loan, they will request two months of bank statements so make sure your debt is clear and all final payments made 2 months prior to requesting loan. This is to help with the debt ratios, see link:  http://www.fha.com/fha_requirements_debt.cfm

By the way, my interest is 3.375%, don't listen to PP or anyone that hasn't been through this and can give you accurate information, my credit score is mid-600s (see link for credit score info: http://www.fha-world.com/2012_FHA_loan.html), I only put down the required 3.5% down payment. They verify income, last 2 yrs of taxes, employment, credit score, they will also need a letter written by you on why you filed for bankruptcy in first place, I found some sample letters online that helped me write my letter, how I had been living beyond my means but completed the credit counseling certificate, etc.  Make sure to check your credit a few months before applying for pre-approval/house searching to check your score, good luck !

 


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12-23-2012 at 10:14 PM
PandaMom06
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Thank you so much for your experience. We definately weren't planning on having anymore debts or debts go into collections after filing however our DS was born with a disability. We had some set backs but know we need to get back on track. We are now at that point where we can. I checked our credit reports last night and didn't find any surprises. Like I said in my OP we will have all debt paid off by February and then will begin to save. I'm really excited! It will be 2-3 years before we're ready to look at buying but now I feel better that it is possible and this hasn't ruined us for the next 10 years. Our bankrupcy was also discharged in 2010.

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12-24-2012 at 7:25 AM
Sisugal
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Sisugal is not online. Last active: 06-18-2013, 3:30 PMPlatinum

Glad your finances are looking better.

In addition to saving for a good downpayment and paying off debt please also plan to save an emergency fund of 6 months' expenses (You NEED this when owning a home!) along with closing costs, moving costs, utility depostis, repair/renovation costs, decorating/furniture/appliances, yard items and tools.  It is far too easy to sink back into debt after the purchase of a home .  Plan for increased costs for utilities and upkeep.  Owning a home is MUCH more than the mortgage payment.  Keep your housing costs (mortgage+PMI+insurance+taxes+utilities and HOA fees) to no more than 25-28% of your TAKEHOME pay. (30-35% in a HCOL area)

 
12-24-2012 at 4:41 PM
PandaMom06
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PandaMom06 is not online. Last active: 06-05-2013, 8:47 PMBronze
Sisugal:

Glad your finances are looking better.

In addition to saving for a good downpayment and paying off debt please also plan to save an emergency fund of 6 months' expenses (You NEED this when owning a home!) along with closing costs, moving costs, utility depostis, repair/renovation costs, decorating/furniture/appliances, yard items and tools.  It is far too easy to sink back into debt after the purchase of a home .  Plan for increased costs for utilities and upkeep.  Owning a home is MUCH more than the mortgage payment.  Keep your housing costs (mortgage+PMI+insurance+taxes+utilities and HOA fees) to no more than 25-28% of your TAKEHOME pay. (30-35% in a HCOL area)

Thank you for the tips. We planned on building up our e-fund but I did not think about all the little extras. That definately makes sense. I would hate to have to replace something right away and have no savings left.


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12-26-2012 at 7:32 AM
wife07mom0...
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wife07mom09 is not online. Last active: 06-19-2013, 3:39 PMSilver

and to the poster who said only put 3.5% down, this is terrible advice. put as much as you can, preferably 20%. putting so little down can make it tough if the hosue is underwater at some point and saving so little for a house (3.5%) is part of the reason finacnes are bad in the first place.  

3-6 mo emergency fund needed like other person said plus all the closing costs.

CONGRATS to you for digging out of this and making strides towards being responsible from now on.

you mentioned medical bills are late. are those paid now? if you cant pay those id put off the house until then. 


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