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Moving Forward Post-Ch. 7 BK... Planning Stages of First Time Home Buying

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  • Moving Forward Post-Ch. 7 BK... Planning Stages of First Time Home Buying

    My no-asset Ch. 7 BK was d/c in May 2013. I filed on my own and would like to eventually make a home purchase on my own - maybe later this year.

    I will soon be employed for 12 months with decent income in a very stable industry - and I love my job.

    I may have waited too long before applying for a credit card for fear of rejection. I finally applied for a Discover card about 4 months ago and was approved for an $800 credit line. I'm making regular purchases and paying off the balance each month. According to my Discover statement, my FICO is 640.

    I currently have about $3,000 in my house fund and have about $6,800 in student loan debt. I also have about $60,000 across multiple retirement accounts including $10,000 I can take out from an IRA to fund a down-payment for a home purchase.

    I love the area I'm in and really hope to stay. I truly believe it's time for a home purchase. Husband is also on board, but due to his own situation, cannot be involved in a home purchase.

    What key things should I be doing if I'm hoping to make a purchase later this year? Should I focus on paying off my student loans? I'm paid through August of this year trying to pay it down with extra money I have. OR should I be saving my extra $$ building my house fund savings account? Which is more important? What else should I be doing at this time?

    Thank you!

  • #2
    Well, at the two year mark, your middle FICO score should be over 670, which mine certainly was at that point after my Chapter 7 discharge. That two year mark is really important to the score and you should see a good jump. If you don't see a big jump -- by big I mean about 30-40 points -- then you may have utilization issues with that new card. Try not to "revolve" more than 10%, and definitely revolve about 10%. I would also get another card (maybe use Capitol One since they can do a soft inquiry) and try not to use that card. Make sure your cards are on AUTOMATIC PAYMENT. You don't want to accidentally miss not even a single payment. You need a perfect history for 24 months.

    Also, do not apply for any other credit until you're ready to start searching for the loan. The inquiries could shave 2 even 5 points off your score and you really want it above 680 if you can. I only say 680 because that's "good" credit. You can certainly obtain an FHA loan easily at 620 with only the 3.5% down.

    Other than that, keep saving!
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog

    I am not an attorney. Any advice provided is not legal advice.


    • #3
      Originally posted by justbroke View Post
      Well, at the two year mark, your middle FICO score should be over 670.
      That's if he was rebuilding these two years. He said he didn't apply for a credit card until a couple months ago. I doubt the middle FICO is going to be 670.

      OP, I wouldn't apply for any credit for 6 months before I was planning to buy a house. If you think it will be at least 6 months away, I'd consider opening two more credit cards for a total of 3. Try the CapOne Prequalifier.
      Chapter 7, above median, no asset. Discharged with no UST involvement.


      • #4
        Save, Save, Save as much cash as you can, you will need it for down payment and closing costs as well. Also, you want to have an emergency fund going as you do not want to be "house poor". Especially since you will be 100% responsible for all the repairs, appliances, yard, maintenance etc., there is nothing worse than getting that house you always wanted then living paycheck to paycheck because of the costs associated with home ownership. You will also need to make sure you have cash in the bank in case you lose you job or have medical issues that would put you on disability etc..

        Live well below your means, buy a much cheaper house than the bank says you can afford if you do not have a large down payment (but have at least 20% down so you are not paying PMI, total waste of money). There is a lot to think about so keep it real and practical, another business decision so keep the emotion out it. Good Luck!


        • #5
          I applied for a a secured card with capital one. I just filed chapter 7 in march. Lawyer said to get a secured card first then evenually try for a regular card after 1 year post discharge. I had to pay 99 deposit and got a 200 limit. I can already see a positive increase in my credit score. I would like to get into a house within the next two years


          • #6
            We just closed on a new construction home about a week and a half ago. We are almost 3 years post BK13 and foreclosure.

            I would recommend getting a copy of your credit reports and making sure that everything is reporting correctly. I would also get a Credit Karma account or similar account just so you can monitor any credit requests, etc. The scores on there are not your mortgage scores but they are, IMO, a good way to make sure there are no surprises.

            Also, save money. It amazes me how many people want to buy a house with no savings and think that as long as the sellers cover their closing costs they will be ok. There are lots of costs that most people don't consider. For most people moving isn't free and there may even be deposits required for establishing utilities if you don't already have them set up.

            We did a VA loan and didn't have to put any money down, but we had to cover $17k in closing costs. When we first applied they wanted to see that we had at least closing costs in our savings account. I think every lender is different, but that is what ours looked for.

            Good luck.


            • #7
              Got it! Thank you all, for your input. We are definitely saving, saving, saving! :-)


              • #8

                Turns out my mid-credit score was 682! Well above the minimum required by FHA.

                I managed to qualify for a mortgage all on my own without my husband's excellent credit/income and we closed on our new house last month. :-)

                Two years and 4 months out of BK-7, I once again, have good credit.

                Definitely making smarter financial decisions as I continue to move forward.

                Thank you all for your insight and advice.


                ETA: And the interest rate was market 3.875%. No penalty for my credit history. :-) Gotta love 2nd chances!!


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