Even if you have filed for bankruptcy, have bad credit or have had a foreclosure doesn’t mean that you can’t buy house. In fact, the answer to the question can you buy a house if you have bad credit is yes. But you will have to pay a higher interest rate than the person who has good credit.
How long to wait after a foreclosure or bankruptcy?
If you file for bankruptcy it will stay in your credit file for ten years. However, the experts say that if you want a better conforming rate, you need to wait at least four years after your bankruptcy before applying for a mortgage. The FHA guidelines are such that you could get a mortgage in just two years after you’ve had a foreclosure, meaning you might be able to get by with a down payment of just 3.5%.
However, the lenders called “hard money” lenders might make you a loan after just six months since you filed for bankruptcy or went through foreclosure. But they will require 20% to 30% down. You will have a very high interest rate and terms that are not as favorable. Many of these will be adjustable rate mortgages and will include prepayment penalties. Also, you can no longer get a 100% financed loan through a subprime lender.
Improving your ability to get a conforming loan
First, get a major credit card. Despite what you might think, it is fairly easy to get one even after you’ve had a bankruptcy. There are three reasons for this: First, a bankruptcy gives you the ability to start fresh. Second, the lender will know you now don’t have any debt. And the third, the lender will know you won’t be able to file for bankruptcy for another seven years.
You need be able to show continual employment on your job for one to two years, earn a steady wage or salary, have at least a 10% down payment and continue to pay your bills on time.
How your interest rate is affected by your FICO score
If you have a low FICO score, you will have to pay a higher interest rate. For example, if your FICO score were 600-640 you would have to pay 1.625% over the prevailing rate (as of this writing). On the other hand, if your score were 540 to 599 you’d have to pay 3.425% over the prevailing rate. This means a borrower with good credit would be paying 5.875% but you would be paying 9.3%.
If you have a really bad FICO score
People with FICO scores under 500 would have to pay 6.25% over the prevailing rate. So while borrowers with good credit would be paying 5.875%, you would be paying 12%. This means if you could get an amortized $200,000 loan at 12%, you would be paying a staggering $2,057 a month.
If you’re not happy with the terms that you’ve been offered by a regular lender, you might try to find a house that you could buy where the seller would provide the financing. This is called a land contract and can be a good alternative. For example, a land contract normally does not require that you qualify. Plus they usually come with a lower interest rate, a smaller down payment and can be closed quicker.
Fix your credit first
If you haven’t gone through a bankruptcy but have serious problems with debt, there is a way to avoid having to pay 5% or 6% over the prevailing rate for a mortgage. It’s called debt settlement and this is where we can help. Our experienced debt counselors can negotiate with your creditors to get your debt reduced as much as possible and to help you develop a credit plan that can get you completely debt-free and 24 to 48 months. Call us today or fill out the form on the right side of this page to get a free quote.