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Planning on purchasing a new home after a bankruptcy? Today, more lending companies are catering to individuals who have a bad credit history or even those who have just survived a bankruptcy. Bad credit mortgage loans or sub prime loans give these individuals a chance to move on with their lives. So if you're ready to take on a new responsibility, then go ahead. There's no reason why your plans should be hindered. In fact, acquiring a home loan after bankruptcy does have its advantages. Let's take a look at these advantages.
Boost Your Credit
Just because you've had bad credit problems in the past mean you can never change your credit worthiness. Bankruptcy does not have to be the end of the road. You can always start anew by getting a home loan after your bankruptcy has been discharged. Yes, it is very possible to boost your credit even after bankruptcy.
Since the only way to increase your credit score is to show that you are a good payer, obtaining a mortgage loan gives you a chance to achieve this. All your financial transactions are reported to the major credit bureaus so you can be assured that making timely payments will have a positive result on your credit. By submitting your monthly payments for your mortgage loan in time and without any miss, you will be able to rebuild your damaged credit reputation.
Build Up Your Home Equity
Renting a home also involves monthly fees. Most homes or apartments for rent are costly especially if you look for ones located in respectable communities or villages. If you have a large family, you may be renting a larger apartment with a more expensive monthly rate. Your tenant collects your monthly rent and that's about it. But if you will purchase a home and apply for a mortgage loan, it'll be like saving your money for the future.
By purchasing your own home and obtaining a mortgage loan, your monthly fees will not be vain. The money you pay for your mortgage loan is in fact an investment. After 15 or 30 years, you can proudly say that you are the sole owner of your home without paying monthly bills. And there's more to that. The value of a home increases over time, so once you're done with your mortgage, you can even sell your home for a higher price.
Obtain a Home Equity Loan
Having your own home gives you the option to apply for a home equity loan. A home equity loan will enable you to get cash that is within the value of your home. Once approved, you can withdraw money from your home equity loan at any time during the duration of your loan's term. You can use this cash in starting up a business or to help you when emergencies arise. You may also use the money from your home equity loan to pay debts that you may have with other creditors.
Financing a home after a bankruptcy doesn't have to be an ordeal. When you find the right lender, you can secure reasonable rates on your mortgage loan. You can improve your loan application with time and some cash leverage. Depending on your financial situation, it is possible to get conventional rates with a bankruptcy on your credit file.
Lenders Who Deal With Past Bankruptcies
With a recent bankruptcy, you can turn to sub prime lenders to obtain financing for your home. As soon as your bankruptcy has been finalized by the court, you can apply for a home loan. Your rates, however, will be about 12% higher than conventional rates unless you have significant cash assets.
After two years, conventional lenders will consider your loan application. Even though your bankruptcy will remain on your file for several years, lenders will be more interested in your current payment history and debt-to-income ratio.
Tips To Improve Your Loan Application
While you can't erase your bankruptcy, you can improve your loan application to qualify for better rates. Down payments of 20% to 50% are the easiest way to become eligible for lower rates. Having cash reserves for two months or more will also help.
When it comes to terms, selecting an adjustable rate mortgage will help you qualify for more and at temporarily lower rates. Selecting a shorter loan period also lowers your rates. Furthermore you have the option of buying down your rate with points. But you may be better served by increasing your down payment and refinancing in a couple of years when your credit improves.
Research Lenders Before You Buy
Take some time to research loan estimates before you select a lender. It is the easiest way to save thousands on your future home loan. Make sure that you use the same numbers and terms when you request loan quotes from different financing companies. That way you will have precise numbers to base your decision on.
Once you have picked a lender, the hardest part of the process is over. In ten minutes or less, you can complete your loan application online. Your loan contract will be delivered in a couple of days for your final review with funds soon to follow.