The economy has been rough on Michigan residents, and it’s led to a multitude of foreclosures, record-high unemployment rates and bankruptcy’s after families try to recover.  There is no doubt that filing for a bankruptcy can be extremely difficult to recover from, and it has a devastating impact on your ability to get credit in the future.

Buying a home in Metro-Detroit after a bankruptcy is still possible, however – you just need to know what steps to take to rebuild your credit and make sure that a Michigan mortgage lender sees you as worthy.

The Initial Phase

If you’re in the middle of bankruptcy proceedings, then you should expect to wait some time before your case is decided and you apply for a home loan.  There are virtually no Michigan mortgage lenders who will extend credit to someone in this type of situation.  What’s more, is that if you are filing bankruptcy it’s smart to take some time to examine your state, get finances in order, and secure yourself before you considering borrowing.

Your Credit After Bankruptcy

Credit ratings take a huge hit from bankruptcy, whether it’s chapter 7 or chapter 13.  While that rock-bottom credit score can be a serious blow to your pride and ego, there are some good things that come from it

1. You’ve learned from the experience of having to reset, and you’ll have your personal and household finances in better order for the future

2. Bankruptcy can settle a lot of unknowns for people, especially unknown debts that you lost track off that affect your score.  Once completed you will know exactly where you stand, how much you owe, and what has been discharged from you credit history.

Above all else, there’s only one place to go from here – and that’s up toward buying a home in Metro-Detroit.

Rebuilding Post Bankruptcy

Buying a house isn’t easy, and trying to buy one after a bankruptcy is even more difficult given the current market and economy.  The first and most important step is to clean up your credit report.  Even in the wake of a bankruptcy you can have errors and open accounts, or overdue accounts, that should be closed.

Get a detailed credit report from each of the major bureaus and review it in detail.  If you find an error, note it and get it reported.

Next, secure credits cards and/or installment loans

One of the fastest ways to rebuild your credit is to prove to creditors and lenders that you have the ability to pay back money that is owed.  Either choice works in this case.

Secured Cards – Secured credit cards can help you buy a home in Metro-Detroit because you place a security deposit for a card with a low limit, often $200 or $300.  You’re essentially spending and repaying your own money, with no loss to the issuer of the card if you default.

Installment Loans – This includes personal loans, car loans and student loans.  This is simply a loan where you make installment payments each month.  If you get this type of loan then all you have to do is make your payments on time to slowly rebuild credit.

Moving Toward Buying a Home in Metro-Detroit after Bankruptcy

While a bankruptcy can remain on your credit as long as 10 years, studies have found that in just 18-24 months after a bankruptcy, debtors can qualify for a loan with even decent terms – especially with the FHA.

The FHA allows you to re-establish credit if:

• Twenty four months have passed since the bankruptcy has been discharged.
• Any outstanding tax liens have been paid or the appropriate arrangements have been made via a repayment plan on file with the IRS or Department of Revenue.
• Three years have passed since a foreclosure or a deed-in-lieu has been resolved.
• All judgments have been paid.

Lastly, keep in mind when you apply for your first loan.  It might be exciting to be told that you were indeed approved for a loan to buy a home in Metro-Detroit, but at what cost?  You could potentially be faced with a much higher interest rate.  Still – don’t be discouraged.  You can make a large down payment to reduce the loan size (thus reducing the interest), and find a loan with no prepayment penalty.