bankruptcy

Buying After Bankruptcy

When the economy fell just over a decade ago, many of American’s lost their careers and their homes. And since then they have been struggling to bring themselves back to where they came from.

If you fall among the percentage of American’s who declared bankruptcy during this period in time, you are not alone. But you should definitely not think that it means you can no longer buy a house.

 

Do not let bankruptcy be the end of your home-buying journey.

Generally speaking, foreclosure leads to bankruptcy. Foreclosure means deficiency (or lacking). So, let’s say you owe $150,000 on your home still and in the foreclosure or sheriff sale, it is sold for $50,000. That means, realistically, you still owe $100,000 on the home.

Now, generally speaking, this final amount is unrealistic for an individual or a family to pay. So declaring bankruptcy to clear their name of the foreclosure and the deficiency.

 

While this may seem like the end of the line, it most definitely is not. First and foremost, there is a waiting period between declaring bankruptcy and applying for another mortgage to purchase a new home.

Here are the waiting periods for the four major loans available:

FHA Loans 2 years

*note: this 2 year waiting period is for Chapter 7 FHA Mortgage. You can actually be paying on a Chapter 13 Mortgage and still be approved.

VA Home Loans 2 years

Conventional Mortgages 4 years

USDA Home Loans 3 years

Once you have surpassed this time frame, you can then begin to entertain the idea of applying for a new mortgage. There are always exceptions to every “rule,” and this is the standard across the board. But at times, there are some circumstances where you can qualify for additional loans before this time period is up.

Now, these guidelines are when your foreclosure is tied up in your declaration of bankruptcy. The foreclosure waiting period for a conventional loan is seven years. But, depending on the period of time between the foreclosure and your declaration of bankruptcy (either before or after), you may qualify for a reduction in the waiting period.

 

Foreclosure then bankruptcy

When your house is foreclosed upon before you declare bankruptcy, things are much more simple. The waiting period begins at the date of the bankruptcy discharge date. For example, if your home was foreclosed in January 2005, filed for bankruptcy in October 2005, and the bankruptcy was discharged in December 2005- the waiting period begins in December 2005. Based on the standards for the conventional mortgage waiting period, you would be eligible for another mortgage in December 2009.

Bankruptcy then foreclosure

Sometimes the roles are reversed. Whether intentional or not, there are times where the bankruptcy discharge date is prior to the actual foreclosure date. When that happens, as long as your foreclosure is tied to your bankruptcy, your waiting period will still fall within the conventional waiting periods listed above.

This is slightly more complicated, but definitely still understandable in layman’s terms. It varies from loan to loan what the waiting period or leniency will be.

For more information on the exact waiting periods for your unique situation, please consult a mortgage consultant. Since each situation is different, it is important to understand exactly where you stand.

 

 

Total Home Lending

 

 

Natasha Mason

Buying After Bankruptcy2020-09-28T15:14:20+00:00

So, what happens when I can’t make my mortgage payments?

We are here to have the difficult conversation with you- the one about what happens when you can no longer make your mortgage payments.

First and foremost, ignoring the problem is only going to cause further financial hardship as time goes on. While pretending the problem does not exist may seem like the preferable option, it is the option that will certainly end in foreclosure. Addressing the issue head on is going to be the most effective, even though it is quite the “sticky” topic.

So, what can you do when you can’t afford to make your monthly payments? Here are a few recommendations that can serve as a lifeboat during tough times.

 

Communication is key

The minute you recognize you can no longer make those payments, it is crucial that you communicate that to your lender. The longer you wait to address the issue, the less options you may have. So, communicate!

Come to the conversation prepared. Have details on why you can’t make your payments and if it is a long- or short-term concern. It is also essential to include details about your income, debt history.

Foreclosing on a home is not necessarily the “best” option for your lender. Opening up these lines of communication with them (early) will give you the opportunity to find a solution that best addresses your current situation.

 

Refinancing

While refinancing can appear great, in theory, it is important to acknowledge the other fees associated with refinancing. Let’s say you have 10-15 years left before paying off your mortgage. Refinancing could provide the opportunity to extend the life of your loan, resulting in lower payments.

This is different for each situation, for each person or family. In order to determine whether or not refinancing is the best option for you, talk to your mortgage lender. They can provide more details on your unique situation.

Ditch the house

Easier said than done. And there are two different options you have here- short sale and a deed in lieu of foreclosure.

A short sale is when the bank allows the homeowner to sell the home for less than they owe on the mortgage. This option is sometimes considered less than desirable to lenders, because they are essentially receiving LESS money back than they originally lent. But, it is an option that is less damaging to your credit score (than, say, foreclosure).

Deed in Lieu of Foreclosure gives a homeowner the opportunity to sign the deed of the house over to the bank, rather than the bank foreclosing on the home. So, here, you turn the home over to your lender so they can, in turn, sell the home.

Before deciding that either of these are the next course of action for you, we recommending talking to a housing counselor and a tax professional. They can provide more insight into the implications of taking this step.

 

Bankruptcy

This is definitely not the easiest thing to do. It will destroy your credit, making it hard to borrow money for multiple years.

It is still possible to declare bankruptcy and keep your home. In a Chapter 13 bankruptcy, borrowers are still able to keep their home, but they must have a stable plan for repaying most of their debt.

While not your first line of defence, declaring bankruptcy is definitely still an option.

 

Time to rent

If you do not want to give up your home, but you can no longer afford your monthly payments, one option is renting out the house. Depending on the area you live in and the demand for rental properties, this may be a viable option for you. However, it is crucial to remember that becoming a landlord is not a “simple” endeavor. But if you are able to secure a renter and a secondary location for you to live while you are renting, this may be a way to save you from foreclosure.

So, whether you are on the verge of foreclosure or you have just stumbled upon financial hardship, we recommend you talk to your lender. The sooner you can open those lines of discussion, the more options you will have at your fingertips. And each situation is unique, so while these are some of our general recommendations, your lender will have information and details specific to your situation.

Total Home Lending

 

Natasha Mason

So, what happens when I can’t make my mortgage payments?2020-09-28T15:14:21+00:00
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