Buying Home After Bankruptcy Mortgage Guidelines

This Article On My Experience In Buying Home After Bankruptcy Was Written By Alexander Thomas Carlucci of Gustan Cho Associates

Buying Home After Bankruptcy
Gustan Cho Associates

Bad Luck Happens / Predatory Lending Pre-Crash

As with many of the blogs I have posted and including this one, I am writing and telling you of my true life experiences.  I just want everyone to know I am a normal person and have gone through some struggles in my life, but I have come out the other side a better person for having those experiences.

First of all, let’s go back to the year 2007:

  • The real estate housing bubble had already hit its peak and had started to deflate although the bubble hadn’t burst yet
  • I was in the market for my first home, and I probably bought at the absolute worst time given the circumstances
  • Hindsight is always 20/20
  • But no one could have predicted the downfall that was just over the horizon
  • We were looking for a home in Elgin, IL and found a place we really like
  • The original list price of the home was $309,000 and had been reduced to $279,900
  • We put in a real estate home purchase offer of $265,000
  • After going back and forth we settled on a final price of $273,000
  • Great, we had just bought our first home

In this article, we will discuss and cover Buying Home After Bankruptcy Mortgage Guidelines.

Victim Of Predatory Lending

Now it was time to get financing as we had made an offer on a pre-approval letter where our broker gave us $300,000 to spend by just asking how much we made annually, not taking into account the debts we had.

  • At this point in time, there were very minimal documents needed to secure a loan, and we were approved for a subprime loan
  • The terms of this loan, when looking back on it were absolutely hilarious and there was no wonder the real estate market tanked the way it did
  • We were approved for a no money down 80/20 interest-only loan
  • What this meant is on a monthly basis we would only be responsible for the interest on the 6.5% primary loan (80%) and the “prime + 2%” HELOC (home equity line of credit) for the remaining 20%
  • This was a loan that didn’t have PMI and also made $0 towards the principal of the loan
  • We were sold this with the thought of “real estate is a sure thing, so it is only going to go up” 

Being in my early 20’s, I ate this up and signed on the dotted line and we were in our house.

Living Through The 2008 Real Estate And Mortgage Meltdown And Buying Home After Bankruptcy

What is the collapse of the real estate and mortgage market and buying a home after bankruptcy?

Let’s fast forward about a year and we were near the end of 2008 and going into 2009, the bubble had definitely burst and the monthly check of my Zillow value was on a steady downward spiral with no signs of stopping.

  • At this time my estimated value was just about $205,000 or about $68,000 less than what I purchased the property for
  • To make matters worse, in mid-2009 my wife was laid off from her job of 6 years and went on unemployment
  • Our household income was cut in half and the question was how are we going to pay all our bills with significantly less money than before
  • When I was sitting down at my kitchen table trying to figure all of this out, my 2 biggest debts were my house and 2 cars
  • This is when I made the strategic decision to stop paying and proactively let my house and cars go
  • I did some research and came to the conclusion we needed a clean slate and to start over
  • We decided a chapter 7 bankruptcy was the right way to go
  • We were able to eliminate all of our debts and change our spending habits to those that matched our new earnings
  • Yes, this completely ravaged my credit
  • I went from a 730 credit score to 570 overnight

However, just about 3 months after the bankruptcy I was able to obtain a credit card and started to build my credit responsibly.

Comparing Renting Versus Owning

We were now living in an affordable rental, making all payments on time:

  • Finally 1 year after this I was able to purchase a new car with the help of a cosigner
  • I had changed jobs
  • I was making more money than I was before and things were slowly starting to turn around
  • If you have read my previous articles, with help from government programs, I was able to purchase a home in the end, just 3+ years after a bankruptcy and foreclosure
  • Speaking of foreclosure, the house we owed $273,000 on when we bought it sold at auction for just $130,500 or 47.8% of what we bought it for

This home had lost $142,500!

Outcome Of Buying Home After Bankruptcy And Foreclosure

What is the result of buying a home after bankruptcy and exclusion

In conclusion, I want to let everyone know that it is okay to file for bankruptcy or even have a foreclosure.

  • Sometimes when the rug gets pulled out from under you, you need to do whatever you can to stand back up again
  • If you do go this route, please learn from this experience as I have and know to make responsible decisions moving forward and always plan for the worst
  • Being able to handle and cope with adversity is half the battle, you need to be proactive in rectifying your situation

No one is going to reach out and help you, you need to help yourself!

About The Author

Alex Carlucci is a veteran seasoned senior loan officer for Gustan Cho Associates. Alexander is also a contributing writer for Gustan Cho Associates Commercial And Residential Mortgage Information Center and contributing editor in chief.  Alex, a career veteran loan officer, and accountant and an expert in all fields of accounting, is also in charge of training income analysis for all of our licensed mortgage loan originators, mortgage processors, and mortgage underwriters, as well as support staff. Alex Carlucci runs training seminars in income tax analysis as well as qualifying income for self-employed borrowers nationwide. We look forward to upcoming blogs by Mr. Carlucci in the coming days and weeks. Stay tuned!!!!!

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