Buying a Home After Bankruptcy
by Belinda from Detroit, MI and by Brad from Brunswick, MD
Ask Kate about buying a home after bankruptcy and with other credit challenges: Belinda wants to know how they can get a mortgage after their bankruptcy to buy another home. She asks if the Fannie Mae HomePath financing will assist in a downpayment since they have not yet received their National Mortgage Settlement check.
Brad needs to buy a two family home to help take care of his wife's parents. Although they have sufficient income, low credit scores are probably going to be the sticking point. He asks if the bank will use his income and the credit scores of his in-laws in qualifying both couples for the mortgage.
How to Get Mortgage Financing to Buy a Home after Bankruptcy By Belinda C. in Detroit, Michigan
Hi Kate, How can we get a mortgage after bankruptcy to buy a home? We are still waiting on funds from the National Mortgage Settlement but they are taking so long.
In the meantime, we are trying to get financed to own another home.
Our bankruptcy will be off our credit reports in the summer of 2013. I know that the mortgage rates are low right now and the house we want is only $30,000.
Me, my husband and my son work and have decent jobs. Will they go by income or credit? Will the Fannie Mae HomePath program help with the down payment? What's my options?
Ask Kate answers: How to Get Mortgage Financing to Buy a Home after Bankruptcy
Nice to hear from you again however I'm sorry to learn you have not received your check from the National Mortgage Settlement
But conversely, I'm happy to hear you are proceeding with the purchase of another home!
That's not to say buying a home after foreclosure
will not be challenging. But until you take the first step, you'll never know where it will lead!
As I tell Brad in the next letter, FHA financing is very helpful after experiencing credit problems. So be sure to read his story and my response to him too. But regardless of which type of mortgage program you pursue, both credit history and the amount of income compared to monthly debt payments are basic qualifying factors. Here is an overview on calculating debt-to-income ratios
Fannie Mae HomePath Homes and Financing
Although you are limited to purchasing a home designated by the HomePath logo, the advantage to Fannie Mae HomePath Financing
is that there are low down payment options, no required mortgage insurance, and the seller can contribute toward your closing costs.
Arm yourself with the facts about mortgage fees and Good Faith Estimates
You can get additional thoughts on First Time Home Buyer's Programs
Best wishes for home buying,
Buying a Two Family Home with Low Credit Score Ratings By Brad in Brunswick, Maryland
Hello, My wife's father has some health issues and it is getting difficult for her mother to take care of him.
We would like to buy a house for them to move in with us so we can help her with him.
Our credit is bad, 570 for her and 517 for me, but our income is over $90,000.
Her parents both have good credit in the mid 700's. They own a house and are willing to sell it. But in this market, it may take some time and she needs help now.
So my question is, can we use their credit and combine our incomes to get a mortgage? We would like to be on the mortgage to help raise our credit score also. What would you do?
Ask Kate answers: Buying a Two Family Home with Low Credit Score Ratings
I admire your plans to take care of your wife's parents. Unfortunately, many lenders are immune to good intentions.
First off, if a lender is qualifying you for a mortgage, they won't use the credit from one borrower and income of a second borrower. Income from all borrowers will be averaged. But qualifying credit scores are gong to be calculated differently.
How Lenders Calculate Credit Scores
Let's say all four of you are going on the mortgage together. The lender takes the middle score belonging to each of you and then bases their credit decision on the lowest of that sub-group.
Here's an example based on two sets of scores. It would work in the same manner with four borrowers. Say your scores are 600, 560, and 610 and your wife's credit scores are 565, 615, and 610. The two middle scores are 600 and 610. The lowest of those two scores, 600, is the credit score that the mortgage decision will be based on.
Bridge Loans for Down Payments
Since waiting for your in-law's house to sell isn't practical, you could do some shopping around for lenders still originating bridge loans.
Bridge loans are basically a home equity loan against the current property to be used as a down payment to buy another home. They generally do not require payments for 6 months and disregard the current house payment in debt ratios.
If you find a bank who didn't toss out this program after the collapse of the financial markets, read their terms very carefully. Watch out for balloon payments
, unreasonable fees
, adjustable rates and prepayment penalties
FHA Mortgage Lenders for Home Buyer Financing
Probably the most forgiving loan program on the market is FHA financing, accommodating less-than-perfect credit and higher debt ratios.
But I wouldn't apply with just any bank. I'd shop around until I found a lender well-versed in FHA requirements, including the loan originator. Try to get referrals from your friends, relatives, neighbors, and co-workers.
You can read more on FHA Financing Guidelines
One more thing. Try to work on improving your credit scores. Find help for this at How to Strengthen Your Credit Score Ratings
Best wishes to your family,
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