Mortgage Application Process

I spent two hours yesterday with the Vice President of Sales at a local bank branch, putting together a loan application to finalize the purchase option on our home. Doing so on an FHA loan will require obtaining a waiver for the two year waiting period after bankruptcy. Not impossible, but not a simple task, either. Should we fail to obtain the waiver, we still have the VA loan option to fall back on.

The loan application process seemed quite tedious, but I found that the only document I needed was a copy of last years W2 form, which was easily obtained from my employer. You should be prepared to provide the following forms when you attempt to obtain a mortgage for your first home after bankruptcy:

• Thirty days worth of pay stubs
• Two years worth of tax returns
• Two years worth of W2 forms
• Current lease information
• Prior lease information (if less than two years in current home)
• Two months worth of statements for all bank accounts
• Your entire bankruptcy packet, including discharge order
• Actual copies of canceled checks to verify timely rent payment

In our case, I also had to prepare a letter explaining the contributing factors to the financial situation that led to bankruptcy that I feel justify a waiver of the two year waiting period. That letter follows:

In July 2003, just prior to my one year anniversary of employment with [name and occupation omitted], I was released from my position. The company had been fervently pursuing other companies to acquire them, and [company name omitted] was in talks with the [company name omitted] Board of Directors about a deal.

As the newest [occupation omitted] in the District, I was downsized in order to make room for a more senior [occupation omitted] whose location would be closed shortly after the merger. After my discharge from the company, day-to-day operations of my location were taken over by a [occupation omitted] with the assistance of the Assistant Managers.

Shortly after my release from the company, when the merger was finalized, [name of company omitted] sold off their [type of business omitted] business and renamed the company to [name of company omitted]. They then began to close several locations across the country that they felt were underperforming. While my location was not closed, another location in the area was closed and the tenured [name of occupation omitted] of that location was assigned to my location.

While there is no supporting documentation, it is clear that as the junior Manager I was released to allow for the retention of a tenured Manager whose location was targeted for closure.

At the time of my discharge from [name of company omitted], my wife was seven months pregnant with our first child. Though I diligently pursued other employment, even accepting an hourly position for a short while during my search, the decrease in income combined with the medical expenses of the pregnancy and child birth created a situation that proved to be insurmountable.

We attempted for the next three years to make ends meet and tried to work with creditors to resolve our outstanding debts. Many of our creditors demanded no less than payments of more than one month's salary in order to make arrangements on the remaining balance – payments that we were unable to make in lump sums.

As we continued to struggle with resolving our debts, my wife became pregnant with our second child – a daughter born in 2006 – and the added medical expenses further complicated the situation for us. When it became apparent to us that the only way we would ever be able to provide adequately for our family was to get a fresh start, we made the difficult decision of bankruptcy. Since the discharge of our bankruptcy, we have remained debt-free with two exceptions: my wife's student loan which has been paid on time for the past eighteen months and a small credit card account we opened on the advice of a lender who said it would help us to rebuild our credit and to better qualify for a home loan when the time arrived.

Over the past twelve months, we have been paying $1200 per month in rent on a lease to purchase option for the home that we are now attempting to obtain a mortgage for. Our rent payments have been made on time or early every month, we have insured the home with a renter's policy through State Farm Insurance, and have maintained on-time payment history on all of our bills and utilities.

We are now in the wait period while an underwriter reviews our loan application to make a determination on whether to approve our loan. The process, of course, required obtaining a new credit report, and I'm happy to report that in the sixteen months since our bankruptcy was discharged, my credit score has jumped 170 points to over 700. Not quite perfect yet, but much better than it was two years ago when we were deeply in debt with seemingly no way out.

Stay tuned for more updates on the latest in our saga toward home ownership.

FHA Loan Waiver Provision

It has been one year (almost) since we moved into our new home -- and almost eighteen months since our bankruptcy was discharged. We moved into our new home on a lease to buy option, which would allow us to build up rent credit toward our down payment while waiting for the FHA mandated two year waiting period to execute and FHA loan.

I have now learned that there is a provision in FHA guidelines that might allow us to take advantage of the FHA loan before we reach the two year post-discharge point. FHA guidelines allow for certain hardships that contributed to the financial situation that resulted in bankruptcy to be given a waiver and receive an FHA loan after just one year post-discharge.

I will be meeting with a lender tomorrow to see how this will work out. Stay tuned...

Home Purchase Agreement Matures

Almost exactly one year ago, I spoke about our home purchase agreement. That agreement is now in the maturation stage, and we'll begin the process of transacting the actual purchase of our home.

Stay tuned for updates on the entire process, which should be quite interesting with in the current economic state of our country.

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One Year and Counting

Where have I been over the past six months? Wow, has it really been that long since my last post? Yes, I guess it has. It has blown by quite quickly.

Life on the post-bankruptcy front has been going along well. We are still essentially debt-free. We have just one credit card, which we use occasionally and pay off every month (which, of course, is the only way that a credit card should be used). Our cars are both paid for (we have resisted the wishes to have new cars because our desire to have no car payment is stronger), and our only real debt is our home loan. Life is good.

Since filing for bankruptcy, we have moved into our new home and even begun tithing to our church. Our new house payment is more than twice what we were paying for rent before we moved. But getting our debt relieved and moving closer to work has so greatly reduced my commuting expenses (the price of gasoline being so high) that we have been able to add tithing to our monthly budget and barely notice the impact (financially, that is). Of course, I believe that tithing has also brought God's blessings upon us and made us better stewards of the money we have left.

We have had money in our savings account for the past six months, and haven't been living from paycheck to paycheck as we did so frequently pre-bankruptcy. Having opted out of pre-screened credit card offers, we have eliminated the potential credit trap that so many newly debt-free people find themselves in. We simply don't receive the offers, so we don't have to resist the temptation to respond to them.

We just hit the one-year anniversary of our discharge date two days ago, and it is a wonderful feeling to still be so fully in control of our finances. It is truly a liberating feeling.

That is not to say that there won't still be an occasional challenge to your debt-free status so long after discharge. Just two weeks ago we received a mailing from a creditor demanding payment of a debt that was discharged as part of our filing. The nicest part of it is, a simple phone call to notify them that the debt was discharged was all it took to end the notices.

The birthday season for our family is now fully in swing, with Christmas following closely behind it. This can be a very tempting time to resort to credit cards and other offers to purchase gifts now and pay for them later. I have just one word of advice that has become my mantra in the world of credit:

DON'T!

For those who you still struggling with the decision to file for bankruptcy, it has not been a bad experience at all. You have to first understand that the option of bankruptcy is there because creditors tend to take advantage of consumers, and we need to have an alternative to being buried in debt. The reason for making the bankruptcy laws so much more prohibitive was to prevent abuse by repeat filers, not to prevent legitimate first time filings. It is not really a difficult process at all, and the past year has been nothing but a positive experience.

I am no financial expert. I am just one man who has been there, but I am more than willing to share my experience with you and to answer any questions that you might have. Just leave your questions in the comments, and I will answer them in the comments.

Credit Offer Opt Out

One quick note worth mentioning. You may notice after your bankruptcy has been discharged that you will once again start receiving "pre-approved" credit offers, and similar solicitations. You receive these because the big three credit bureaus actually sell your information to companies looking to mail out credit offers. And each and every one of these companies can cause an inquiry to appear on your credit report, which does not look good to actual credit providers that you might be trying to business with.

There is a solution. Simply go to www.OptOutPrescreen.com and you can ask to be removed from such offers. While it may take several months for the offers to trickle away, you can up out online for up to five years, and you can opt out permanently by mail. I highly recommend that you put a stop to these credit solicitations before your bankruptcy has been discharged. Check it out today!

By the way, there is no cost involved, and I receive nothing for recommending them here, other than the satisfaction of knowing that I might be helping someone else who has been in a similar financial situation to the one I'm emerging from.

Thoughts From The New Home

It has been two months since my last update. Things in the bankruptcy arena tend to slow down a bit aftrer discharge. We're in our new home now, and have been for about a month and a half. Details are much as I explained them in December. We're currently renting the home, with a purchase agreement that will go into effect within the first twelve months. The rental arrangement is much as if we already are the home owners.

Getting out of the lease for our old home was only a minor issue. We had lived there for approximately five years, and were on a month-to-month lease at the time, so our only obligation was a thirty day notice (with rent) before vacating the home. We did that, and the landlord actually complained that we weren't getting out a few days earlier so she could re-rent the home at the beginning of the month (our original projected vacate date was January 4).

What was most surprising of all was her reaction to the fact that we were moving out in the winter. Her comment was something to the effect of, "I always treated you guys right, except for that one time when I tried to sell the house. I can't believe you would do this to me, moving out in winter. You try to do somebody right and this is the thanks you get." Talk about being furious!

It turned out that we were able to get into the new home on December 28, so I took twelve days of vacation and we began moving. It felt like a much longer process than it actually was, but we finally got everything moved and dropped off the keys to the old place on New Years Day.

HAPPY NEW YEAR!!!

And so it has been. We have loved the time in our new home, and my wife is already making color choices for paint in every room. She has gone nuts trying to pick out her window treatments and wanting to change out light fixtures here and there. And she wants to buy a new black refrigerator to match the appliances in our new home.

So what has happened on the credit front? Well, I have been attacking the credit repair process. I have looked into the possibility of credit repair companies, but have rejected those. They seem to be nothing but a costly way for a lazy person to have someone else do what he can do easily enough himself.

By simply logging on to view your credit report online, you can submit errors on your report for investigation, and you can do so with all three major credit bureaus from one site. THIS IS THE ONLY SITE AUTHORIZED UNDER THE LAW THAT ALLOWS YOU TO VIEW YOUR CREDIT REPORT ANNUALLY FOR FREE. ACCEPT NO IMITATIONS. Others will look like this site, but will trick you into signing up for some kind of credit protection scheme that you don't need in the first place. It's just another way for services like these to tack more debt onto you. Don't do it.

I have filed for investigations on nearly every item on my credit report with all three agencies. Those investigations take approximately 30 days to complete. At that time, they provide you with an updated copy of your report and give you the opportunity to file for additional investigations, if needed. You can pay more to actually receive your credit score if you like -- that part isn't free -- but if you simply address the issues that need correction, the score will improve itself.

Also, I opened a secured credit card. This is a credit card that is guaranteed to the lender by a savings account that you open with them or a partner bank for an amount equal to the credit limit on the card they issue. Many banks offer secured cards. You may want to check out one or more of the following:

• Orchard Bank
• Washington Mutual (WaMu)
• Capitol One
• Bank Of America
• Wells Fargo
• your local bank

I cannot specifically endorse one bank over another, and naturally you must research which choice is right for you. The above banks are all reputable banks that offer secured credit cards. You can expect to pay some sort of fee, whether they call it an application fee, or an annual fee, or some other name of their choosing, but if you shop around you can find a very reasonable fee to open the account (mine was less than $40). They will make you feel like they are "approving" your credit, but for most of these institutions, all the approval needed is an associated savings account that guarantees they aren't taking any risk.

The above mentioned banks will report your payment performance to all three of the major credit bureaus. This is the most critical part of any secured credit card. The only way to rebuild your credit is to use it. Do not waste your time with someone who will not report your payment performance -- good or bad -- to the three bureaus.

Another important note! It is not necessary to carry a balance on a card to improve your credit. When you receive your secured card, you should do four things:

1. Sign the back of the card immediately
2. Call to activate the card
3. Use the card to make one small purchase or utility payment that you can immediately pay off
4. Put the card away where using it will be very inconvenient

My wife and I use our secured card to make one payment every month, whether it be for a utility or for gasoline or some similar expense. We then immediately log onto the issuing bank's website and make full payment in the form of electronic check from our checking account. Don't ever wait to receive a statement before paying your bill. By the time you've received your statement, you have already incurred finance charges and interest. The only way to avoid such charges is to keep your card balance at zero every month when the bill is cut.

Rebuilding your credit is easy, if you have the drive to do so and take a little time to do the research.

And remember, you must always be wary of those past creditors from your pre-discharge days. Some of the less reputable ones will still pursue and try to scare you into making payment. If you enter into any agreement to repay any debts you incurred before your bankruptcy was discharged, those agreements are legally binding and those debts are once again valid. After paying so much money to get your debts discharged in the first place, don't let anyone trick you into agreeing to accept those debts as valid again.

We received in the mail today a statement from someone claiming to have purchased a debt we owed to Capitol One prior to filing for bankruptcy. That debt was discharged in bankruptcy in August of last year. This will happen. When it does, don't worry. You have the full power and authority of the United States Court System standing behind you. If you included the debt in your bankruptcy filing and your bankruptcy has been discharged properly, you no longer have any obligation to repay this debt.

I placed a simple phone call to the company that sent the letter. I was very polite to them, and when they asked if I would like to take advantage of their settlement offer, I replied, "No, I'm calling to inform you that this account was discharged in bankruptcy six months ago." You should be prepared with the case number, which district the bankruptcy was discharged in, whether it was an individual or joint filing, when it was discharged, and the name and phone number of the attorney who represented you. After providing this information, if the creditor contacts you again, they are breaking the law and can be held responsible for paying punitive damages.

I guess that's about all for this month's update. I'll try to do these on at least a monthly basis. If you have any questions, please feel free to post them in the comments section (please, no personal information about yourself), and check back for more information.