More people buying homes again after bankruptcy or foreclosure

May 17, 2013

More people buying homes again after bankruptcy or foreclosure

Article provided by Liviakis Law Firm
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When people consider bankruptcy as a possible solution for overwhelming debt, many fear how it could affect their future credit rating -- specifically with regard to their ability to qualify for a mortgage. With careful planning and dedication, however, many people are able to re-enter the housing market within just a few years after a prior bankruptcy or foreclosure.

Although precise data about the trend are not available, Reuters reported that a growing number of families and individuals are purchasing homes again after going through bankruptcy, foreclosure or short sale. The report was based on interviews with buyers and professionals in the real estate industry, including lenders, real estate agents and builders.

Bankruptcy is considered a negative credit event, but when used correctly it may be able to help indebted individuals restore their long-term financial health. Although their credit scores will fall at first, bankruptcy offers people a way out of the vicious cycle of missed payments and declining credit scores. This gives borrowers an opportunity to start fresh and rebuild their credit from the ground up. While the process requires patience and hard work, the rewards can be great.

Rebuilding credit after bankruptcy

The most important factor in qualifying for a mortgage or other major loan after bankruptcy is rebuilding credit. Because bankruptcy and indebtedness can take a heavy toll on a person's credit rating, it is important for anyone wishing to purchase a home after bankruptcy to take active measures to restore their credit.

Many people who have been through bankruptcy are understandably reluctant to open new lines of credit for fear of becoming overwhelmed by debt once again. However, borrowing wisely is essential to establishing good credit. Therefore, people who hope to qualify for a mortgage as soon as possible after bankruptcy should take active steps to restore their credit rating by using credit carefully and strategically.

Patience is essential when rebuilding credit, and because the process can be slow it is wise to start as soon as possible after bankruptcy. Depending on the circumstances, the first step may be to apply for a secured credit card. Unlike regular credit cards, secured credit cards are backed by money that the borrower has deposited with the bank issuing the card. Because the credit limit on secured credit cards is typically equal to the deposit amount, they reduce the lender's risk while giving the borrower an opportunity to rebuild his or her credit.

Demonstrating creditworthiness

Whether using a secured or unsecured credit card, borrowers can begin to rebuild their credit by establishing a pattern of responsible borrowing. This in turn helps convince potential lenders that they can depend on the borrower to repay any loan he or she may apply for further down the road.

When rebuilding credit after bankruptcy, it is important to make all payments on time every month. In addition, it is wise to go slowly when beginning to use credit again; avoid opening too many lines of credit at once or spending heavily in a single account. Borrowers should also stay well within their credit limits and avoid maxing out their accounts. Paying off the entire balance each month, rather than making only minimum payments, will help keep debts from piling up and will also benefit the borrower's credit rating.

Contact an attorney

People considering bankruptcy as a possible solution to unmanageable debt are encouraged to talk their situation over with an experienced bankruptcy lawyer. An attorney with a background in bankruptcy law can help borrowers understand their options and guide them through the process should they choose to pursue bankruptcy.