Recently on our legal forum a user asked, “My spouse and I filed for bankruptcy about eight years ago. We lost our house, a car, and several other assets prior to the bankruptcy filing. I feel like we’ve gotten our financial situation back in order. We’ve paid down all our debt, built an emergency savings account, and saved a little for retirement. We’d love to own our own home. What’s your thoughts? How do you know if it’s a good time to buy a house after bankruptcy?”
Filing bankruptcy can be devastating. Whether it’s due to a divorce, job loss, money mismanagement, or a serious illness, what many people consider an easy fix can be anything but easy. It sounds like the experience was especially difficult for you. Losing a home and other possessions, even if you have some debt discharged, can be very difficult.
The good news it sounds like you have made some tough decisions and taken some sound steps to get your family back on strong financial footing. In fact, it sounds like you might be ready to consider buying a new home. Before you do that, however, let’s take a look at some things to consider before buying a home.
Steps to take before buying a house
- Wait the required length of time before buying a house.
Many bankruptcy filers may be ready to buy a house just a few months or years after the bankruptcy filing. Unfortunately, not only will the bankruptcy remain on your credit report up to 10 years, many mortgage lenders will not even consider giving you a loan until a specified time has passed,
What does this mean for you? You will not necessarily have to wait for 10 years for the bankruptcy to disappear from your credit report, but you will need to review the time limit required for the type of loan you are considering.
- Save enough for the down payment and for other emergencies.
You mentioned you had saved enough for a six-month emergency fund. That’s great news. Next, you will need to save money for the down payment for your house. Although a lender may allow you to purchase a home for as little as 3% down, conventional wisdom suggests that a 20 to 25% down payment is much better.
- Determine whether buying a house is right for you.
Finally, you will need to determine whether home ownership is the best choice for you. You mentioned owning a home is your dream, but it’s important to take an honest look at whether it’s right for you. Owning a home can be very expensive. Taxes, insurance, property repairs, home improvements, maintaining the yard- all these activities take time and money.
It’s also important to consider how long you will be in a particular area? Will your job require you to move? Is your family expected to grow? In many cases, selling your home after just a few years may not be the best decision for most home owners.
The good news is buying a house after bankruptcy is possible for many homeowners. You will need to make sure, however, that it is the right choice for you.
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