Yes, You Can Own a Home After Bankruptcy or Foreclosure
In these tough economic times, more Americans than ever have been through a foreclosure or bankruptcy. With the high value that American society puts on being a homeowner, losing your home can be a traumatic experience. For people who have been through foreclosure or bankruptcy, owning a home again can seem like a dream that will never be realized.
However, there is good news. Recent interviews with more than 30 builders, lenders, consumers and realtors indicate that many homeowners who have been through the process of bankruptcy or foreclosure are able to own another home-some within a relatively short time, provided that the homeowner takes certain steps.
How to Get Back on Track
Bankruptcies and foreclosures may stay on credit reports for at least seven years. Therefore, it is important for the former homeowner to start rebuilding credit before he or she attempts to purchase another home. Credit scores can be dramatically improved within months by consistently making bill payments on time, paying down credit cards, lowering other debt, and avoiding going into additional debt.
Experts say that many Americans who have worked to rebuild their credit and save money are able to buy another home within two years. Loans from the Federal Housing Agency (FHA) are a popular way for formerly distressed homeowners to be able to finance the home. As many former homeowners cannot qualify for a conventional mortgage, these types of loans have exploded in popularity recently.
In general, conventional mortgages offer lower interest rates, but require a significant down payment of 20 percent of the purchase price, a minimum credit score of 720 and proof of income. FHA mortgages, on the other hand, only require a credit score of 620 and a much lower down payment of 3.5 percent of the home’s purchase price.
FHA-backed loans do have some drawbacks. In addition to the higher interest rate, they require a mortgage insurance premium of 1.75 percent of the loan. However, this can be rolled into the mortgage. In addition, yearly payments of 1.25 percent of the outstanding loan are required. Despite the shortcomings, many Americans find that FHA loans are a more affordable option.
FHA loans are not the only help available. Many former homeowners are also eligible for first-time homebuyer programs. Such programs assist buyers in making the down payment and closing costs. In general, this program is available to anyone who has not owned a home within the prior three years.
An Attorney Can Help
If you are considering filing for bankruptcy or are threatened with foreclosure, it can seem like the end of the world. However, this is not the case. An experienced bankruptcy attorney can explain the bankruptcy or foreclosure process to you, advise you on how it will affect your financial situation and recommend the best debt-relief option for your individual circumstance. With the proper planning, owning a home again can be possible.