Forex Articles

If it's the American Dream to own a home, it's the American Nightmare to file for bankruptcy. In the late Aughties (that's the 2000s) the U.S. housing market collapsed and the economy began its freefall; by the time the economy struck bottom in March 2009 more than 1.2 million parties had filed for bankruptcy in the previous 12 months. By March 2010 that figure had shot up to 1.5 million. Blame job loss – unemployment peaked at 10% in October 2009 – as well as divorce and medical expenses. From 2008 through 2013 total foreclosures reached 17.9 million.

But the rate has been getting lower all the time: In the 12 months ended December 31, 2013, the number of bankruptcies had dropped to 1 million, and by December 2014 it had fallen to 910,000. Meanwhile, last month (February 2015) unemployment fell to 5.5 percent, the lowest since May 2008, while in December 2014 new-home sales reached a six-year high. Right about now sounds like the time to buy into the Dream. But what about doing it after living the Nightmare?

Well, you're going to have to show some discipline. And some pay stubs. And dance a few more steps.

a.) Find out your credit score. (Yes, that's why you're seeing all those TV ads promising free credit reports.) By law, the traditional three agencies, Equifax, Experian and TransUnion, are required to provide a free report once a year. Once you see them, do you see any mistakes? If so, challenge them on the company's website. Why is it so important that they get it right? According to the 2005 Experian National Score Index study, Americans who have filed for bankruptcy have an average credit score of 604, compared with an average of 677 for non-bankruptcy types. The higher your credit score, the less interest you'll have on that mortgage payment: 1.5 to 2 percentage points less. (Also, see What Do Credit Score Ranges Mean?)

b.) Stay at your job: That shows a potential lender that you're trustworthy.

c.) Rebuild your credit: Obtain two or three secured credit cards, charge only small amounts, and keep them paid off. Take out a small loan, either a personal, car or student loan, and pay it off quickly. Never make a late payment. Always make an early payment. Always pay your rent on time. Never bounce a check, and consistently stash cash in your savings account. (Also, see The Best Credit Cards After Bankruptcy.)

e.) You must learn patience: If it's been less than two years since filing for bankruptcy, you wait. If you've lost your home to foreclosure, it's longer: you have to wait three years. And the countdown clock doesn't start when you've loaded the last box on the moving van; the lender has to complete the foreclosure. After the waiting period, make sure you are fully prepared to apply for a loan. Ask yourself if you have a good debt-to-income ratio. Is your life stable? (No high medical bills, for example.) And have you logged a goodly amount of time on the job? (Promotions count!) Have you a retirement plan or assets in a 401(k)?

f) First the good news: Counterintuitively, if you've gone through foreclosure real estate agents and mortgage brokers looked upon you favorably: you're a motivated buyer – you've bought a home, and lost one, and now you're back again. You'll do whatever it takes. And more good news: the foreclosure could be your only credit problem, which means you might be able to clean up the mess a little more quickly.

g) The Government is here to help: Almost all lending institutions – banks, credit unions, and mortgage lenders – will work with Government-sponsored programs. There are two: There's the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA), which is available only to veterans of the honorably-discharged variety.

h.) Back to bad news: If that foreclosed loan was backed by the FHA or VA, it's now being tracked by CAIVRS, a Government database. CAIVRS is almost as bad as the NSA: you're ineligible for another Government-backed loan until you've repaid the government.

i.) Seek preapproval: If you've been foreclosed upon, the lender must preapprove your new home loan, so check with the lender first before starting the search. In fact, check with a real-estate pro before the lender just to ensure you've filled in all the boxes.

j.) Size matters: Prepare to make a good-size down-payment: 10 to 20%. Also, prepare for a higher interest loan. And don't look for a McMansion: or Monticello, or Mount Vernon or… you get the drift. Find a fixer-upper, a slightly ramshackled place in a gentrifying neighborhood, something that has flood damage without the mold, an older condo, a co-op, maybe a mobile home, something repossessed by a bank or seized by the Government for illegal activities. Yes, that former meth lab could be home sweet home.

k.) Shake the family tree: The lender may want a co-signer, and a relative may be willing to co-sign. This, of course, leaves them responsible if you blow off house payments. Make sure they're familiar with you, your morals, your finances, your credit score and your payment history. Make sure they trust you, and make sure you don't ruin their credit. But seriously, only do this as a last resort.

Filing for bankruptcy sucks eggs. Huge, rotten, ostrich eggs. But that doesn't mean you should give up on the American Dream. Yes, you'll have to rebuild your credit, which takes time and effort. But it's something you can work on right away to start washing that foul taste out of your mouth.