Life after bankruptcy can be challenging, particularly when it comes to a person’s ability to receive loans or financing for a home, a car, an education, a credit card, or a small business.
This site is dedicated to helping individuals negotiate the various obstacles they will face while trying to rebuild credit history and improve their financial situation after declaring bankruptcy.
Bankruptcy is a scary situation for anyone, especially aspiring homeowners. However, there is hope for anyone interested in getting a mortgage after bankruptcy.
Next-Day Application
There are times when a mortgage can be secured the day after filing bankruptcy. When a person can afford a 15% down payment and is able to fully cover the closing costs, a mortgage could be acquired the day after debts are discharged. This method requires that the applicant not be in any form of debt counseling or similar program. It’s also important to note that rates will be more favorable if the waiting period is observed. As mortgages tend to persist for 30-40 years, paying a lower interest rate means massive savings.
Immediate Application: Chapter 13 and Chapter 7 Bankruptcy
While immediate applications for mortgage loans can be filed with both types of bankruptcies, there are some differences between the two. Chapter 7 filers must wait until the debt has been completely discharged to apply for a loan. Conversely, those who filed as Chapter 13 can apply immediately because they have been put on a payment plan. Additionally, those on a Chapter 13 payment plan have the ability to pay off their bankruptcy debts using the equity from their new home.
Waiting Period
After filing bankruptcy, most banks will require a 3 year waiting period before applicants can reapply for a mortgage loan. Fortunately, applicants will find that the application process is easy. Additionally, 100% financing is available after this waiting period. While it is possible to reapply at some banks after 2 years, the bank will charge significantly higher interest rates and may require a down payment for this early re-admission.
Using the Waiting Period to Rebuild Credit
Although lenders require a two-year waiting period, borrowers should not sit idly during that time. Saving money, making timely payments on a secured credit card, and finding a job can all greatly improve the chances of getting a mortgage after bankruptcy. Two years is ample time to prove that the ground work has been laid for a successful financial future.
Start Saving
Any cash that a borrower has lying around should be put into a savings account. The more a person saves, the more they can prove to the bank that they have a strong dedication to finance. Banks and mortgage loan providers love to see an applicant with the ability to put aside money for the future. Savings accounts can be opened at no cost online or through a local banking branch. Those looking to open savings accounts should compare interest rates and balance minimums to find a solution that works for the current financial situation.
Maintain the Same Job
The impulse to search for a bigger and better job after bankruptcy can be extremely tempting. Sometimes it can feel like the only way to avoid a repeat situation is to start making more money as quickly as possible. However, those seeking to get a mortgage should stay within their current job position. Creditors want to know that an applicant has a stable source of income and holding down a job demonstrates responsibility. Retaining a job for the entire two to three year wait period is most advantageous. At the very least, potential borrowers should maintain the same position for one year.
Shop Around for Quotes
It is always at the borrower’s advantage to shop around for multiple quotes from mortgage companies. Accepting the first offer that comes by can lead to overly high interest payments or unfavorable loan terms and conditions. Services such as Google Advisor and Zillow allow potential buyers to compare mortgage rates instantly online. Local branches of banks and other financial institutions can also provide assistance in comparing mortgage rates and financing plans.
Avoid Large Purchases
Potential borrowers should steer clear of large purchases such as cars or recreational vehicles. The interest rates on the payments will increase debt ratio, making an applicant look less financially secure. A vehicle should only be purchased if it is absolutely necessary and if there is enough cash to cover car payments, outstanding debt payments, and the potential mortgage payment. Even then, borrowers should focus on buying a used vehicle with a solid operating history. Used cars have significantly lower monthly installments and can be paid off in a few short years by diligent savers.
Getting a mortgage after bankruptcy is possible by demonstrating that you are stable and secure. Have patience and focus on building savings and the mortgage will easily follow.
