Mortgage Help After Bankruptcy
Buying a home after filing for bankruptcy is possible if you demonstrate you learned your lesson. Mortgage lenders with normal rates, conventional and FHA lenders, will not provide you a mortgage immediately after bankruptcy. These lenders require you to re-establish your credit history before lending you hundreds of thousands of dollars to purchase a home. Some subprime lenders may allow you to purchase a home immediately after bankruptcy if you have a 30 to 40 percent down payment.
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Re-establish Your Credit
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Once the bankruptcy discharges, it's up to you to re-establish a positive credit history. One of the easiest ways is obtaining a secured credit card. The secured credit cards require you deposit money with the credit card company or bank in exchange for a line of credit. Even though it is lending you your own money, if your balance doesn't exceed your deposit, it will report your positive payment history to the credit bureaus. It will also charge interest. Other banks and lenders may also offer you loans at higher than normal interest rates, which will help increase your credit profile as well. Remember, It only takes a couple of lines to re-establish your credit.
Avoid New Derogatory Credit
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Avoid any new derogatory credit issues like the plague. Derogatory credit after a bankruptcy usually severely delays your chances for a new mortgage loan in the near future. Mortgage lenders closely look at the payment history after the discharge of the bankruptcy. One or two isolated 30-day late payments may be ignored if they can be sufficiently explained, but a pattern of late payments will certainly deter the mortgage lender from approving your loan.
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Pass Mandatory Waiting Periods
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The mortgage lenders require home buyers to wait a specific number of months after the discharge of the bankruptcy before they will approve the new loan. This is regardless of how well the credit history has been re-established. Fannie Mae and Freddie Mac, the two main conventional investors, require filers of Chapter 7 bankruptcy wait at least 48 months before approving a new home loan. The Federal Housing Administration (FHA) makes home buyers wait two years before providing financing. If you can prove your bankruptcy resulted from circumstances beyond your control, the lender may reduce these times, but it will not eliminate them.
Prevent Future Bankruptcy
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Once your bankruptcy discharges it's easy to borrow more money than you should. Old habits die hard sometimes. Create a budget and work within your budget each month. While you must use credit to re-establish your credit, ensure you can easily make the monthly payments without being late. When you purchase your home avoid riskier loans such as adjustable rate mortgages, even if it means a delay in buying your dream home.
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