Many people in the Chicago area have had the difficult decision to declare bankruptcy. There are times when bankruptcy is the only option. Whether it’s an incredible amount of medical debt, credit card debt, student loans, job loss, or any other situation, bankruptcy does not have to be the end of a person’s future. Instead, bankruptcy should be seen as a fresh start and buying a home after declaring bankruptcy can happen.
There are steps a person should take after going through a bankruptcy in order to prepare for buying a home.
Step 1: Repair credit
A person who has gone through bankruptcy will have a poor credit score. They will need to re-establish their credit by getting a secured credit card and paying the balance off each month. A person should also pay down any debt they have after the bankruptcy is finalized. And all bills that are received should be paid on time.
Step 2: Letter of explanation
When a person has raised their credit score up and are ready to apply for a mortgage, a letter of explanation to the mortgage company can be a good idea. The letter isn’t a requirement, but it can help the lender see the bigger picture of their client. The letter should include details of why filing for bankruptcy was necessary and what the applicant has done since the bankruptcy to prevent it from happening again.
Step 3: Get preapproved
When a person is ready to buy a house, they should apply for a mortgage preapproval. This can allow a person to know how much they can spend on a house and let sellers know that they have the funding needed to purchase their home.
Step 4: Pay attention to lenders inquiries
Once a person has applied for a mortgage the lender will review the applicant’s income, assets, debts, and credit to see if they qualify for the mortgage. They may have questions regarding items on a credit report, especially after a bankruptcy, so being ready to reply to their questions is important.
A legal professional who is skilled in bankruptcy understands their client is going through a rough time. They can help their client understand their bankruptcy options so that they can make a fresh start.