Buying a House After Bankruptcy

How a Bankruptcy Can Effect Your Mortgage Rate

Hello,

My question is what is a credit card company supposed to report after a bankruptcy has been discharged?

I will be out of bankruptcy for two years in March 2006. I plan on buying a house this spring and would like to raise my credit score up.

I only filed on the credit cards and I kept my current car loan. I have a 559 credit score now.

Please help.

Jason

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The bankruptcy will remain on your credit report for ten years. There's nothing you can do about that.

You don't have to wait that long to re-establish your credit score, but I think you should wait a few more years before buying a house. Even if you can get a mortgage now, you will be paying thousands of dollars extra due to the higher interest rate you will be charged.

Your credit score depends on many things. Among the most important are the age of your debt, your repayment history and the percentage of your debt to your available credit.

You already have a car loan. Have you kept up on your payments? This is the first way to get your score up. Make your payments on time and don't falter.

Get a credit card, even if it has to be a secured card. Use only a small portion of your credit line, 20 - 25%, and make your payments on time. Make sure your creditors are reporting your good behavior to the credit bureaus.

The difference in interest charged is explained in Credit Scores and Mortgage Rates. In your case, you will likely be charged about 4% more than someone with a prime credit score or about 9.625% (compared to 5.6%) on a thirty year fixed mortgage. (Rates as of December 1, 2005.)

In dollars this means you will pay about $850 per month for a $100,000 loan. A prime borrower would pay about $575.00 for the same mortgage.

Work on repairing your credit. Wait until you get your score up to at least 680. Then you will only pay about 3/4 point more in interest. Otherwise you will likely find you can't keep up with your mortgage payments, which will not help matters at all.

Read this comprehensive article about the changes caused by bankruptcy reform.

For a consultation with a local bankruptcy attorney, click here.

2007 Update

While Jason was hopefully not effected by it, the housing bubble has burst along with the sub-prime housing market.

This means that recent bankrupts and others with bad credit are going to find it very difficult to get a mortgage. A lot of the foolishness in the mortgage market has disappeared.

Under pressure from the Federal Government, banks will now require downpayments, proof of your ability to repay your debts and will charge more in interest to boot.

So while it may not be totally impossible, it will be much harder to get a mortgage.

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