Mortgages After a Bankruptcy Discharge

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A bankruptcy discharge doesn't mean you're trapped into a life of renting. It's possible to get a mortgage loan after a bankruptcy. The key is taking steps now to improve your credit score. Thus, you'll have the credit rating and history to get a home loan after a couple of years.

Pay Present Debts

Debt not included in your bankruptcy discharge such as an auto loan or student loan can help improve your low score after a bankruptcy. The number of points taken off your credit score once a bankruptcy appears on your credit report varies; however, you can anticipate a significant drop in scoring. Every time you make an auto loan or student loan payment on time, your low score will slowly improve. Keep sending these payments on time to avoid late fees and additional damage to your credit score.

Get New Credit

If all your debts were wiped out in the bankruptcy discharge, opening new credit accounts or taking out a new loan is key to rebuilding your credit and getting a mortgage after a bankruptcy discharge. Higher interest rates are common after a bankruptcy discharge. However, the end result is a higher credit rating and the ability to qualify for a home loan. Talk to your bank about a high-rate credit card or a secured credit card. Both are easier to get with a low credit score after a bankruptcy. Secured cards require paying a deposit to the bank, and both types of cards typically have low credit limits. You should pay these new accounts on time each month and keep the debt low by paying off balances in full each month. Timely payments and low debts are key to boosting a low score.

Two Years

Typically, lenders will not review your application for a home loan until your bankruptcy discharge is at least two years old. This gives you ample time to rebuild your low credit score and improve your credit history. During this two-year period, you should begin saving your extra cash for a down payment on the new mortgage loan--a minimum of 5 percent. Also, keep accurate copies of your income and retain tax returns, banking statements or paycheck stubs.

FHA Home Loan

When you are ready to apply for a mortgage loan after a bankruptcy discharge, talk to your lender or broker about FHA mortgage loans. Insured by the federal government, FHA mortgage loans approve borrowers two years after a bankruptcy, or three years after foreclosure. Unlike other mortgages that may ask for a 680 minimum credit score, FHA home loans only require a score of 620 or no credit score. This low credit score requirement is subject to perfect credit since your bankruptcy discharge, which means no more than two 30-day late payments on any debts.

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