Mortgage after Bankruptcy
Obtaining a mortgage after bankruptcy is not easy, but it can be done. The first step involves getting your finances in order to show proof to lenders that you have overcome the financial challenges which caused you to file bankruptcy in the first place.
It generally takes a few years to obtain a mortgage after bankruptcy. In most cases, you will need to re-establish credit through documentation of rental history. For most people, rent is their largest monthly expense. If you have any desire to obtain approval for a mortgage loan, it is imperative to make certain your rent is paid in full and on time each month
When lenders review your application, the timeliness of your rent payments will play a huge role in the Underwriters decision. It is important to document rent payments through valid sources, such as cancelled checks and bank statements. Receipts from landlords or money order stubs are usually frowned upon by lenders. Therefore, it is also important to establish a bank account.
If you are unable to obtain a bank account, find out why and take necessary steps to correct the problem. If you have outstanding debts related to overdraft checks or bank fees, contact the banking institution and find out how to repay the debt and have it removed from your credit report.
Before applying for a mortgage after bankruptcy, obtain a copy of your credit report. You can contact the three major credit reporting agencies individually or through AnnualCreditReport.com. This free service provides one credit report per year for all three credit bureaus.
Oftentimes, accounts which are discharged in Chapter 7 bankruptcy are not removed from credit reports. Carefully review all information listed and request derogatory reporting be removed. CreditInfoCenter.com provides preformatted letters to dispute charges and request removal of improper credit reporting.
Once your credit report is cleaned up, apply for a secured credit card. Secured cards are available through banks, as well as major credit card establishments (MasterCard, VISA). Most secured cards require you to deposit $200 to $300 into a separate account. You then use the card however you choose. When funds run low, you make another deposit.
The purpose of secured credit cards is to help you better manage your money. By funding the card with your own money, you are less likely to buy things you don't need. This is the reason many people file for bancruptcy in the first place.
After establishing a solid record of being able to fund the secured card, the bank may offer you an unsecured card with a $300 to $500 limit. As long as you display financial responsibility, over time you will be able to increase your spending limits.
Credit cards can be very dangerous, so use extreme caution. Remember, you are trying to obtain a mortgage after bankruptcy and cannot afford to allow credit cards to ruin your opportunity at owning a home.
Avoid taking on new debts such as department store cards or automobile loans. The less debt you have, the better your chances of obtaining a mortgage after bankruptcy.
If you are engaged in a repayment plan through Chapter 13 bankruptcy, chances are you will have to wait until you successful complete the plan before obtaining a mortgage loan. One alternative to consider is looking for real estate where the homeowner offers seller carry back financing.
Seller carry back mortgages are creative financing where the homeowner carries the note on the real estate. Instead of paying a mortgage note to a lender, you pay directly to the homeowner. Although tempting, careful consideration must be given to seller carry back deals. It is always a good idea to have a real estate attorney draft legal documents to cover both parties.
These are a few suggestions for restoring credit after filing bankruptcy. Through hard work and budgeting, you can get back on your feet and accomplish your goals. If you would like to learn more about creating a household budget, credit card counseling, and personal money management take time to browse our personal finance article library.