- Buying a Home After Bankruptcy - taberandrew
Job loss, foreclosures and other economic hardships have caused many to struggle to make ends meet, forcing many into bankruptcy. But what happens after? Is it possible to obtain a mortgage loan after the bankruptcy has been discharged? Contrary to popular belief, it is not only possible, but a very real fact that one can get a mortgage loan or refinance after your bankruptcy. Whether it takes six months or longer, the following are important tips to follow that will improve one's chances of obtaining a mortgage loan after bankruptcy:
Pay All Debts on Time
Continue to pay all items not discharged in the bankruptcy, such as car loans, home loans, or student loans. Be sure to pay all other bills on time, including utility bills and medical bills. This establishes good payment history and will reinforce a credit history.
Get a Credit Card
Obtaining a credit card may be difficult after a bankruptcy, especially if applying for an unsecured credit card. Opt instead for a secured credit card. A secured card will require a cash collateral deposit, which will become the credit line and will determine how much can be charged on the card. Develop a good relationship with the bank providing the card by making timely payments. Secured cards should not carry balances; instead, they should be used as a tool to reestablish credit.
Making small purchases on the card and paying the card off every month will show excellent credit history. Be aware that secured credit cards usually have higher interest rates, some companies will charge exorbitant fees, and some may even charge an application fee, so it is important to shop around first.
If able to acquire an unsecured credit card, be careful of the amount of credit card debt used. Too much debt may make it more difficult for someone to qualify for a mortgage loan because they may appear to be a credit risk. One or two revolving credit cards are sufficient, as long as timely payments are made.
Clean Up the Credit Report
Get a copy of the credit report and check it for inaccuracies and errors. Often after a bankruptcy, accounts that should have been included in the bankruptcy are still open and showing as late or in default on the credit report.
All mistakes on a credit report will have to be fixed, which will involve notifying the creditor and sending disputes to the three major credit reporting bureaus, TransUnion, Experian, and Equifax. This may take time, so be sure to pull a copy of the credit report as soon as the bankruptcy is discharged and then once a month to be certain that new inaccuracies that appear can be taken care of promptly. Removing errors will improve debt-to-income figures and will make it easier to qualify for a mortgage loan.
Although a bankruptcy can remain on a credit report for up to ten years, this can be mitigated immediately by adopting responsible credit habits. Lenders will look at the debt-to-income ratio to determine creditworthiness and ability to repay a mortgage loan. Applicants must also have an established job history, and lenders may ask for a copy of paystubs and/or tax returns to show stable employment history and income. Rebuild the savings account. Having a large downpayment will enable applicants to obtain a better interest rate.
If a loan application is rejected, find out why and fix the problem. Some lenders have strict qualification policies regarding bankrupt borrowers while other lenders have special programs for people with bankruptcies. This process will require diligence, and most of all, patience.
Sources:
Harelik, Justin, Getting a Mortgage After Bankruptcy, Bankrate.com. Retrieved Mar 23, 2010
Mortgage After Bankruptcy. (2004-2010). Bankruptcy Home. Retrieved Mar 23, 2010
Weston, Liz Pulliam, Bounce Back Fast After Bankruptcy, (2010). MSN Money. Retrieved March 23, 2010 from www.articles.moneycentral.msn.com/Banking/BankruptcyGuide
Curry, Pat, 10 Questions Before Getting Secured Credit Cards. (2009). Bankrate.com. Retrieved Mar 23, 2010
Valerie Williams - Valerie Williams resides in the Metro-Atlanta area. She earned a Bachelor of Arts degree in Organizational Management, and has spent much ...
