Mortgage Update, And More

As I mentioned recently, my wife and I have decided to try to purchase our first home. This, of course, is an unusual thing so early out of Bankruptcy. We are learning that most lenders want you to be anywhere from one to three years AFTER Bankruptcy before they'll take a chance on a home loan.

We've spoken with one lender and one mortgage broker (sort of a lending agent who takes your credit info and shops around to see if he can find a lender willing to take a chance on you). The first lender was with Wells Fargo, and she was unwilling to take a chance on us so soon after discharge. She said that we didn't really need to worry about establishing any new credit at this time, but to just allow some time to pass before borrowing.

The mortgage broker gave us a different story. He said that our credit score actually isn't bad for being so early after Bankruptcy (more on that later). He said that the biggest concern he had was that we have not yet worked to reestablish our credit by opening a few new lines of credit (more on that later, too). He actually said that he felt he could get us signed up for a mortgage in six to eight months if we establish a couple new lines of credit and keep them current.

This mortgage broker actually provided us, free of charge, with a copy of the credit report that he ordered. He reviewed a couple things on the report with me that concerned him and referred me to a credit repair agency that can help me to correct them. Namely, there was a loan for the car that I surrendered back to the lender still reported on our report as open. This loan was indeed filed with the Bankruptcy and should show up as discharged. I contacted the lender and they claim that it is showing as paid off on their end, and that the error is with the credit bureaus. There was also a credit card still on the report as open that should appear as discharged. There is a prior auto loan on the report that was paid in full that still shows up as open. And then there's an item showing as open that I have never seen before. So I have four items on my credit report that need attention that are pulling down my credit score. I would not have known this without seeing my credit report.

Our attorney, as good as he was, never suggested that we pull our credit report again after the bankruptcy and review it for accuracy. You cannot sit still and just assume that everything will be correct on your report after your bankruptcy has been discharged. That is the most important time to become actively involved in ensuring that your credit report is 100% accurate and that you are taking the necessary steps to rebuild your credit. Again, this is something that our attorney did not tell us. Coming straight from bankruptcy, it's natural to think, "I'm never going to get a credit card again." However, that is exactly what you need to get -- get a credit card. One or two of them, three at the most. You get them, you use each one of them once, then you pay them off in full immediately. This will show them as active open lines of credit that will continually be reported as current, causing your credit score to increase.

The mortgage broker I spoke with actually suggested that I get a credit card, use it to pay the utility bill, then send full payment immediately to the credit card company. With most cards, if you pay it in full immediately you will incur no finance charges or interest. And since your just sending the money to the credit card company instead of the utility company, you aren't actually spending any extra money. He suggested we do this with two or three credit cards as soon as possible.

Bottom line is, it doesn't look like we are going to find anyone to finance us so soon on our home loan. What we did find, however, is a seller who is very much interested in helping people to realize their dream of home ownership, very interested in helping people in situations like ours to rebuild their credit, and very patient and flexible. He still has a plan to get us into this beautiful home that we have come to want so badly. We are currently working on a lease-to-own option that will allow us to sign a one year lease for the home, during which time we will open a few credit card accounts to increase our credit score, work with a credit repair agency and the credit bureaus to correct the errors on our credit report, and save up the necessary money for our down payment to purchase the home a year from now. At that time, we will once again contact the same mortgage broker, who we will stay in touch with throughout the year, and ask him to honor his word and get us financed for our first home.

So it looks like we will be moving very shortly into our very first home -- the first home that we will actually be able to call our own. Much closer to work. In a very nice community, with a very nice school district. And with all of the room we could possibly need until the kids are grown and move out.

So don't let yourself fall into the do-nothing trap that is so easy to fall into after a bankruptcy has been discharged. You must get active and make sure that your credit report is indeed correct, and take the steps necessary to begin rebuilding your credit. But open those credit card accounts with caution. Contact your bank first and see what they can do for you. Try to avoid secured credit cards and annual fees, if possible (I'll report on this as soon as we see what options are available to us). And, most importantly, DON'T spend any moeny that you don't have yet. Pay ONE bill with your credit card -- one bill that you would otherwise pay with cash or a check -- then send that same cash or check to the credit card company to pay it in full.

Be smart. Be aware. And be credit-worthy once again.