Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I buy a home after bankruptcy?”
Many prospective borrowers emerging from financial hard times after personal bankruptcies peaked in 2010 are seeking to reenter the housing market. Experts caution borrowers from rushing into a mortgage too soon after bankruptcy and having to pay a high rate of interest on a loan.
The better a person’s credit score, the more competitive interest rate a person can get on a mortgage loan. People who go through bankruptcy usually exit the process with credit scores in the low 500s.
Credit expert John Ulzheimer of CreditSesame.com cautions that while borrowers with minimum scores of 620 can qualify for mortgages, these loans can come with steep price tags, or high interest rates. Ulzheimer said prospective borrowers need a minimum score of 680 to qualify for truly competitive interest rates.
Looking at the 680 number, many borrowers who have exited bankruptcy may ask: How do I get there from here?
Personal bankruptcies stay on a person’s credit report for 10 years. That does not mean, however, that it takes 10 years to rebuild a person’s credit to a point at which one may qualify for a mortgage.
Sean Young, a senior mortgage adviser at FirstCal Colorado, a Denver, Colorado-area lender, said he is seeing a lot of mortgage applications from people who went through bankruptcy or foreclosure during the Great Recession, which officially ended in 2009.
Many lenders provide loans that are backed by the Federal Housing Administration or a quasi-private company that is backed by the federal government called Fannie Mae. Fannie Mae purchases loans from lenders—assuming the loans meet certain criteria—allowing the lenders to have more liquidity and to make more loans to more borrowers.
After exiting bankruptcy, prospective borrowers must wait from one to four years to apply for a mortgage backed by Fannie Mae or the Federal Housing Administration. These wait periods differ depending on the nature of a person’s bankruptcy and other circumstances unique to each person.
Just because a person can apply for a mortgage again, Ulzheimer cautioned, does not mean one should. Cherry Hill, New Jersey bankruptcy attorney Mark S. Cherry recommended that people who desire to reenter the housing market should establish a track record of timely rental payments over at least a two-year window.
People fresh out of bankruptcy might be “truly better off renting,” Cherry said, noting that it can be difficult even for people without a bankruptcy to get a mortgage.
Bill Banfield, vice president of capital markets for Quicken Loans, said that borrowers who were able to hold on to their homes through the bankruptcy process can seek to refinance in order to take advantage of low interest rates. Banfield said rates are still hovering around four percent.
Even persons still in the midst of a Chapter 13 bankruptcy can qualify for a Federal Housing Administration-backed mortgage, as long as their lender provides documents showing “one year of the payout period under the bankruptcy has elapsed and the borrower’s payment performance has been satisfactory.” In addition, persons still in bankruptcy must obtain permission from the bankruptcy court to consummate the refinance transaction.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
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