Bankruptcy and its Influence on Your Ability to Purchase a House
Author: Preethi Sundar
Bankruptcy is a situation where you have more expenses on your hand than cash to pay for them, as a result of which you have a financial crisis. This is a difficult situation to handle as you have to face an uphill task of paying debts and building your finances.
However, not all is lost as a result of bankruptcy. Even if you are bankrupt, you can still own a home. The reasons why this facility is now available to people is because there is an increase in the number of people ho have declared bankruptcy, and who wish to own a home. Furthermore, there is a seven year gap between any two bankruptcy filings. This gives time to recuperate finances.
If you have declared bankruptcy and you wish to buy a home, your state of bankruptcy will affect your ability to make a home purchase. Here is a look into how bankruptcy affects home purchase.
Filing Bankruptcy
Filing bankruptcy can be done under two Chapters. One is Chapter 7 and the other is Chapter 13. Lets’ take a look into each, to understand how they affect your finances and you ability to get a Home Loan.
Chapter 7
When you file under Chapter 7, all assets owned by you will be liquidated. You have to know all rules and regulations related to filing bankruptcy under this Chapter and you should also bring out all details related to your real financial situation, when you stat filing bankruptcy.
Filing Bankruptcy under Chapter 7 is easy and a simple process. However, when you file Bankruptcy this way, you have to wait for a fairly long period till you become eligible for a home loan. Even for you ton see some positive result in your financial condition, you would have to wait for some five months.
Chapter 13
Filing bankruptcy under Chapter 13, should be considered as a last resort. When you file bankruptcy this way, you will have a repayment plan put in place, so that your financial situation improves. In case you have no financial assets at all, filing under Chapter 13 is really the best thing that you can do as it can protect you under such circumstances. If you have taken a home loan, this form of bankruptcy filing prevents a foreclosure from happening.
If you want to take a mortgage refinancing loan, after bankruptcy, you will find this easier to do when you have filed bankruptcy under Chapter 13 than Chapter 7. Furthermore, your credit report is highly tarnished, as what would happen when you file under Chapter 7.
What to Choose?
You should look into factors such as rules, your financial situation and you need to get a home loan in the future, to decide which Chapter to file bankruptcy. However, one point to be noted is that when you take a home loan, after filing bankruptcy, you have to pay more in terms of mortgage repayment dues every month, than those who don’t file bankruptcy and this applies even if you have a FICO score of 600.
What Happens after Filing
Previously lenders and financial institutions had no problem in lending to someone who had discharged from bankruptcy. Today, this situation has changed with lenders being ready to offer finance even when a person is still in bankruptcy. There are many lenders who specialise in providing such finance and you can avail such services, through an online application also.
Thus, today when you apply for a home loan after declaring bankruptcy, your have good chances of having the loan sanctioned. However, there is a waiting period. In the case of ordinary home loans this waiting period is two years and in the case of FHA Loans, the waiting period is two years. If you are planning to go in for an FHA Loan after declaring bankruptcy, it is vital that you submit a permission letter to buy a home from the trustee.
Summary
Putting the whole matter in brief, you can get a loan according to the kind of rates you want, even if you are bankrupt provided you are ready to wait for four years. However, you can also get a home loan after six months from the date on which you declare bankruptcy, but this also from money lenders who stat hard requirements such as inconvenient loan terms, high interest rates, down payment of 20%-35% of the loan amount and prepayment penalties. In such a situation, you have to be ready to put up with the problem that your credit report which show your bankrupt status for a period of ten years.
Article Source: http://www.articlesbase.com/real-estate-articles/bankruptcy-and-its-influence-on-your-ability-to-purchase-a-house-981917.html
About the Author
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