Buying Your First Home After Bankruptcy
Last updated November 2nd, 2018
One of the topics that causes anxiety for people who are considering filing bankruptcy in Las Vegas is how long they will have to wait to buy a home after bankruptcy. Fortunately, bankruptcy does not change the process of buying a home.
Buying a home after bankruptcy is no different for you than for anyone else—although you may need to take steps to rebuild your credit before you can get a mortgage.
Certain government loan programs require a waiting period after bankruptcy in order to qualify. For instance, Federal Housing Administration (FHA) guidelines require the debtor to show two years of responsible debt payments after the bankruptcy discharge before it will issue a federal guarantee on a home loan. Your banker can help explain any restrictions or limitations on federally guaranteed loan qualification.
To help you along the path of homeownership following bankruptcy, here are some tips about the home-purchasing process and what you can do to hasten the day when you walk into your next home.
Save money for yourself
This is sage counsel for anyone who’s just out of bankruptcy, whether they want to buy a home or not. It’s much riskier to rely on credit cards for emergencies than before bankruptcy, because it’ll be several years until you can file in Chapter 7 again. Because of this risk, it’s necessary to prepare for the worst before you can prepare to own a home again.
Save money for your new home
The traditional down payment for a first home purchase is 10 to 25 percent of the purchase price. The more money you put down, the better your interest rate becomes, and the cheaper your monthly payment. For a $200,000 home, that makes the down payment $20,000 to $50,000.
Veterans Administration (VA) Loans available to veterans require nothing down. FHA Loans guarantee your loan and require only a 3.5 percent down payment. Fannie Mae and Freddie Mac Loans require a three percent down payment.
Most lenders require private mortgage insurance (PMI) on any loan with less than a 20 percent equity in the property. That can mean a down payment, a great purchase price, or a combination of the two. The PMI payment is insurance to protect the lender and does not pay off your loan.
Speak with the bank
By pre-qualifying for a loan, you will know exactly how much you can borrow and your expected interest rate. Your lender will explain closing costs and fees. At this point it pays to shop around for the best deal. In some cases fees and closing costs can run into the thousands.
Find a realtor
Your real estate agent will help you locate the ideal home that you can afford, and will represent your interests during negotiations. The seller pays a real estate sales commission of four to six percent. This commission is shared between the seller’s agent and the buyer’s agent. Consequently, there is no downside to having a buyer’s agent.
(And no, the seller’s agent will not split the commission with you if you don’t have an agent.)
Make a reasonable offer
Your real estate agent can help you understand what would be a reasonable offer. Homes are generally priced to sell, so the negotiation often comes down to just a few thousand dollars. However, there may be other issues like repairs or improvements that the seller is able to provide at a discount. This is especially true when negotiating with the builder as seller.
Have a home inspection
Never buy a home without having it inspected. Not only are you looking for serious flaws in the home, but you can learn a lot about home maintenance and what to expect in terms of repairing or replacing systems and appliances as an owner.
Get a draft copy of the closing paperwork
The actual closing process is always a hurried process and the legal documents are intimidating. Ask for a copy of all of the paperwork so you can be sure you understand the terms before you sign. You may also want to discuss any uncertainties with an attorney for clarification.
Also, be sure to carefully review the terms of your mortgage documents. Understand how much you owe and when each payment is due. Then, keep up with your payments so you don’t fall into the same debt trap you were in before filing bankruptcy.
Yes, you can buy a home after bankruptcy
If homeownership is important to your lifestyle or necessary due to your family size, there are steps you can take to buy a home after bankruptcy.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 702-803-9251 to set up your free consultation.