How to Get a Mortgage after Filing for Personal Bankruptcy

Written by: April Lunar

Going through personal bankruptcy isn’t a pleasant experience, but it has an important result. You either pay your debts or get your debts eliminated and obtain a financial fresh start. You may think that your financial fresh start doesn’t include the American dream of buying a home. However, life after bankruptcy does include the American dream of buying a home. It doesn’t matter whether this is your first home or subsequent home. You can buy a home after bankruptcy. The following is some information to help you buy your next home. 

You have a Waiting Period Before Buying a New Home 

Typically, you must wait about two years after your bankruptcy is complete. This means that you can start the home buying process after your Chapter 7 was discharged. If you apply for a Federal Housing Authority (FHA) loan, you can try to improve your credit score by opening new accounts. This may meet the credit score requirement for an FHA loan. That credit score is 640 or higher if you want to place a small down payment on your home. You can even qualify for an FHA loan if you have a credit score of 500. 

You don’t have to acquire new credit to qualify for an FHA loan. You may meet the credit score criteria after your chapter 7 is completed. Your choice will depend on your credit score and why you filed for bankruptcy. 

Here’s some good news about the two-year waiting limit: there is a 12-month exception to the rule. If you filed chapter 7 bankruptcy and the circumstances were beyond your control such as sudden unemployment you might reduce your waiting period to one year. To do this, you must be able to show the lender that you were financially responsible after completing your chapter 7. 

You didn’t file chapter 7, but chapter 13 bankruptcy. As you know, chapter 13 is a three-to-five-year payment process. The good news is that you can buy a house while you’re making bankruptcy payments. To obtain an FHA loan, before completing your bankruptcy plan, you must have paid all your trustee and monthly payments for one year. 

The second step is to receive court approval. This means you make a request to your trustee to purchase a home using an FHA loan. Your trustee approves that request. The last step is showing that you won’t file bankruptcy again. In other words, you must show your trustee that the reason you file Chapter 13 won’t happen again. 

A Foreclosure May Require a Longer Waiting Period 

If you want a conventional loan that isn’t backed by the government, the waiting period is two years from your bankruptcy discharge. Certain circumstances can make you wait to apply for a mortgage longer. For example, if you filed for bankruptcy after a foreclosure, your waiting period is three years. 

Why? For government loans, the wait is three years because you went through the foreclosure process and your home was auctioned. Another reason you may need to wait three years is if you filed more than one bankruptcy in a certain time period. 

Clean Up Your Credit during Your Waiting Period 

In certain circumstances, a lender won’t take your application seriously. In fact, even if you do everything right, a lender may scrutinize your credit report. In both situations, you want to correct any mistakes on your credit report. These could be debts that aren’t yours or that were paid via bankruptcy. 

Consider rebuilding your credit with different types of credit like credit cards and installment loans. If you’re skittish about getting another credit card after bankruptcy, obtain a secured credit card. This type of credit card gives you a limit balance based on the amount of your deposit. For example, if you deposit $300 on a secured credit card, that’s your balance. 

An installment loan is a type of short-term loan where you make periodic payments. These payments are usually required each month. An installment loan can be a car loan, student loan or personal loan. 

Increase Your Odd of Securing a Mortgage 

During your waiting period, you want to do certain things to look more credit worthy to lenders. For instance, use as little credit as possible. This means don’t max your credit cards, even if they are secured credit cards. Also, don’t apply for too much credit at once. This makes it seem like you’re having financial problems and won’t be able to repay creditors. 

Build your credit slowly over the two- or three-year period. You can make early payments or on-time payments for more than the minimum amount. Pay all of your monthly bills on time. It is another way to show that you are financially responsible after your bankruptcy discharge. 

Another way to increase your chances of getting a mortgage after bankruptcy is to stay at your current job for a certain length of time. Lenders like to see that a mortgage applicant has a stable job. This means they’ll be able to pay their mortgage. 

Getting a mortgage after completing bankruptcy isn’t hard, but it takes some work. Once you’re prepared to apply for a mortgage after your waiting period, be sure you meet your lender’s criteria. Most lenders want to see a good debt-to-income ratio. This means that you have more income than you have monthly debts. 

You also want to have money in your savings and/or checking account. This money is in addition to any down payment you have saved for your new home. Additional money in the bank is an indication that you’re not living from paycheck-to-paycheck. Obtain a 401(k) or other type of retirement plan on your own, if it’s not offered through your employer. Retirement plans are a great asset to your credit portfolio.


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