One of my clients largest concerns is what will the future look like after bankruptcy. How will my credit be affected? Will I be able to get lending again? Will I be able to buy a car? Will I be able to buy a house? This blog will address renting and buying a house after filing a bankruptcy.
A Closer Look At Renting After Bankruptcy:
If you are currently renting an apartment or house when you file bankruptcy, your landlord will most likely not find out. If you owe your current landlord money than they will be notified of your bankruptcy. If you are current on rent, then your landlord will most likely not be given notice. If you need to find new housing after filing bankruptcy, your credit report will most likely be run. When you apply for new housing, most landlords are going to run a credit report on you. When they look over your credit report they will see your bankruptcy filing.
From my experience landlords are looking at your rental history and your source of income. Those two factors are still the biggest concern for most landlords. If you don’t have evictions or unlawful detainers on your record and you are employed or have a source of income, finding housing should not be too difficult.
Before you filed bankruptcy and were looking for housing, a potential landlord would look at your credit report and see delinquent accounts and a high debt load. Now after a bankruptcy a potential landlord will look at your credit report and see now delinquent account and no debt load. This will put you in a better position than before a bankruptcy when you are looking for renting an apartment or house.
Another factor that will have landlords look at your more favorably is that landlords know that if you have recently filed bankruptcy, you can’t file bankruptcy again. That means that landlords know that you won’t be able to discharge debt that is owed to them and that if you fall behind on rent, a landlord would be able to collect on the debt you owe.
Things That Can Help When Applying for Housing After Bankruptcy:
1. Improving credit after bankruptcy:
If it’s been a couple of years since filing a bankruptcy, a potential landlord is going to be interested in what your credit report shows since filing bankruptcy. If you have on time payments on any open accounts, and no delinquent accounts that will help a landlord show that you have stabilized financially since a bankruptcy.
2. Showing Rental History
If you can show your previous rental history to a potential landlord, that could help to show you are trustworthy. Rental payments usually don’t show up on a credit report so if you have previous landlords that can serve as your references that could help greatly. Asking previous landlords to write a letter showing that you had no late payments or showing canceled checks from your bank could help to bolster your housing application.
3. Tell your Story
With most landlords, you can have the opportunity to tell your story. This is very different than trying to tell your story to a loan officer at a bank, where it really can’t be taken in to consideration. If you had to file bankruptcy because of a job loss or an illness, a landlord may be willing to bend their application rules a bit. You could explain that your bankruptcy was a one time only event and that your financial circumstances are very different now than they were before the bankruptcy filing.
The Truth About Buying A Home After Bankruptcy:
Many people think that after filing bankruptcy, they will never be able to be a homeowner. This is simply not true. What is true is that you have to be patient after your bankruptcy, because it will take time. The general rule is that it will take about 4 years since a bankruptcy discharge to qualify for private lending for a home. If you can qualify for government backed loans such as first time home buyer or VA loans, then the period of time may be as short as a year after filing bankruptcy.
In this period of time after a bankruptcy, you will want to work on building up your credit score. One the largest factors for all lenders is still your source of income and what disposable income you have to work with. Having a strong job history, length of time at a job, and income to debt ratio will all help.
You may be able to apply for a mortgage sooner than the periods stated above but you may qualify for loans that are less favorable, think higher interest rates, that could hurt in the long run. A mortgage is typically 30 years, that means 30 years of interest rates, so the lower the rate the better, and that might mean waiting longer than you would like to qualify for a loan that will serve you best.
The biggest take away from this is while if you are renting or buying is that you must have some patience while you are rebuilding your credit. Bankruptcy will not affect your ability to rent nearly as much attempting to apply for a mortgage, but both can be greatly impacted by your credit report. The more you do to work on your credit score after a bankruptcy the better off you will be whether you are renting or trying to buy a home.