Buying A House After Bankruptcy - Things To Consider

Posted by Nick Niesen on October 29th, 2010

Bankruptcy can make getting any kind of financing much more difficult. However, it's not impossible anymore to get financing, even a few days after the discharge of a bankruptcy. But, is getting a loan soon after a bankruptcy a smart thing to do?

It can be tempting to buy a new home, new car, etc., after a bankruptcy discharge you have no debt left. You will probably feel like you can afford a larger house payment. Here are some factors to consider before committing yourself to a new house payment.

Pre-Payment Penalty - Almost every subprime loan (bad credit loan) now comes with a pre-payment penalty. This penalty is usually about 6 months worth of house payments. The pre-payment penalty period usually lasts 2-3 years. That means, if you want to refinance or sell your house in that period of time, that will make it very difficult, if not impossible to sell or refinance. That means that you are locked in. Once you sign those mortgage papers you absolutely have to make those payments. If you don't have the amount of the pre-payment penalty in savings, you are locked into making the payments or losing the house.

Two Year Mark - Keep in mind that after 2-3 years from the date of the bankruptcy discharge, mortgage loans will be much easier to get. With a small down payment, you might even be able to get a mortgage loan without a pre-payment penalty. So, if you are within 6 months or so from the 2 year mark. It would be smart to wait it out and have more mortgage loan options.

Setting Yourself Up For Failure Again? Borrowing Too Much? - If you do decide to buy a house. Buy one that you know you will be able to afford. Don't max yourself out on credit, living right up to the edge of your income. If your income suddenly drops, you'll want to make sure that you can still afford your house payment. Be conservative with how much home you need to buy.