How to Get a House Mortgage With Bankruptcy
Declaring bankruptcy can deal a traumatic blow to your credit history. However, bankruptcy is not a death sentence when it comes to obtaining a mortgage on a home later on. It is possible to purchase a home with a bankruptcy filing on your credit file. Nothing on a credit history lasts forever, and it's possible to bounce back in a relatively short amount of time when following the right steps and the right plan of action.
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Instructions
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The Path To a Home Loan
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Obtain new lines of credit once a bankruptcy is discharged in the court system. The easiest way to do this is by applying for secured credit cards.
A secured credit card will require an upfront deposit of at least $200 and can be secured for as much as $5,000. The key in rebuilding credit using a secured credit card is not to utilize all of the available credit you have, but rather to charge small amounts each month and pay them off within 30 days. The more often you follow this strategy the faster your credit history will rebound because of developing a history of responsible credit usage. After six months to a year of good payment history you can move on to obtaining unsecured cards.
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Apply for lines of unsecured credit. Focus on credit cards that have more relaxed guidelines for approval. These will include department store cards, jewelry store cards and gas cards. The same principles apply to unsecured credit lines as with secured credit lines, inasmuch as the objective is not to utilize all of the available credit, but to charge small sums and pay off the balance each month.
The key to building a good credit history quickly is to not close any open lines of credit before applying for a mortgage. Mortgage companies are more inclined to issue an approval on a loan application when it's clear that you have worked diligently to rehabilitate your credit, and have learned your lesson by responsible credit use once the bankruptcy has been discharged. After a two-year period of using both secure and unsecured credit lines you are ready to apply for a mortgage.
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Check your credit history. Since most banks will require a minimum credit score of 620 or higher, it's important to know where your credit stands prior to applying for a mortgage. If your score hasn't rebounded to this point over a two-year period, try contacting creditors to increase the available lines of credit on unsecured debt.
Increasing credit lines increases the amount of available credit on your credit reports, resulting in an increase in score and a more favorable credit rating overall.
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Speak to a mortgage banker. Be upfront about your bankruptcy situation, and be ready to validate your building of a good credit history over time. Also be prepared to write a statement for the lender detailing what caused the bankruptcy and the steps you have taken to improve your credit rating after the bankruptcy discharge. This is better known as a letter of explanation, and is required for any derogatory items on a credit history.
Also be prepared to bring in income documentation and evidence of a good payment history with all current creditors to strengthen your case for a home loan. The more information that you can provide a lender regarding the efforts you have made to rehabilitate your credit after bankruptcy, the higher the chance that you obtain a home loan with a good interest rate and favorable terms.
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References
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