Getting a Mortgage After Bankruptcy
I am currently in bankruptcy proceedings and will be discharged in October. I have seen that some mortgage brokers will consider you for a mortgage after 1 year of good credit, 2 years after discharge with steady and stable employment. Is this true and will they consider me for the same interest rates offered to people with great credit? Will they look at circumstances surrounding bankruptcy? I hate the fact that I am currently paying someone else’s mortgage with my rent.
I understand what you are saying about “paying someone else’s mortgage with your rent”, but you need to keep things in perspective.
When a person files bankruptcy it is usually because something has gone “wrong” with their life – they’ve lost a job, they are separating from a spouse, they’ve lost track of their spending and their bills are out of control.
Don’t be in too much of a hurry to climb back into debt (even for a house).
Most people don’t realize that once you add the property taxes, utilities and maintenance to your mortgage the total monthly payments for a house run about 25% more for the “owner” than they do for a “renter” for the same size of house. A good portion of the equity an owner is building in their house is made up of money they are paying back to the mortgage company.
That’s not to say that buying a house isn’t a good idea. I am simply recommending a little caution.
You mentioned mortgage brokers – as an experiment you should try this:
Book an appointment to see a mortgage officer at your local bank. Ask them what you should be doing to re-establish your credit and what interest rates the bank is charging its customers for mortgages. You should also ask them how long it might be before the bank would approve you for a mortgage.
Then book an appoinmtent to see a mortgage broker and ask them what interest rates they would charge you for a mortgage right now – that is, before you re-establish your credit.
The extra cost is the premium you would be paying to buy your house today, instead of waiting to re-establish your credit. If you are willing to pay the extra money then go ahead and buy the house.
If you don’t mind a suggestion, what would make better financial sense is this:
Set aside the “extra money” every month that the mortgage broker would have charged you and add it to the down payment that you are saving. Then when your credit has been re-established you can either borrow less for the same house or buy a bigger house for the same monthly payment. It will also allow you to test whether or not you can afford the extra cost of owning a home before you actually are stuck with the payments.