How to Get a Home Loan After a Bankruptcy

02/17/2018

Selling by FSBOIf your financial situation has forced you to file for bankruptcy in the past few years, you are likely wondering what steps you should take so that you can get a mortgage. Some people file for bankruptcy and give up on buying a home because they don’t believe they have any hope. They often stay at apartments or rent a home for many more years than they have to.

After people file for bankruptcy, many wrongly assume that they will need to wait 5-10 years before they can get a home loan again, but that is not true.

How Much Time Must Pass?
No matter how much you want to avoid it, time is often one of the most important factors when it comes to getting a mortgage after bankruptcy.

For traditional mortgages, such as conventional loans through Fannie Mae and Freddie Mac, and government-sponsored mortgages (such as FHA loans), you only need to wait either 1 or 2 years before you can get a new mortgage.

If you have filed for Chapter 7 bankruptcy, you will need to wait two years before banks will consider your application. After filing for a Chapter 13 bankruptcy, you may be eligible for a new mortgage after you have made 12 months of payments on-time. We recommend reading
this article on The Mortgage Reports, which provides a lot of useful information on the different waiting period requirements for different types of loans.

Aside from traditional mortgages, such as conventional and FHA loans, there are also now what are known as “non-prime mortgages”, which do not require any waiting period at all, but require a larger down payment. If you are able to put a large amount down for your home purchase, you may want to consider viewing some mortgage lenders that deal with bankruptcies a little bit differently. These non-prime mortgage lenders may allow you to get a mortgage even just 1 day after your bankruptcy has been discharged, but expect to put at least 20% down.

Rebuilding Your Credit
If you are looking for a conventional or FHA loan, simply having the waiting periods pass by does not necessarily mean that banks will accept your application. You will want to ensure that your credit score has improved so that you can meet the necessary qualifications. Luckily, you can take several steps to rebuild your credit and get back on track. Without waiting any longer than needed, take steps each month to enhance your credit score to increase your odds of getting a mortgage in the next few years. You can start by taking out a secured credit card and making your payments on time.

Rather than paying the balance off at the end of each month, keep a revolving balance of 20 percent of your available credit if you want to get the most from your effort. As long as you keep your goals in mind along the way, you can make impressive improvements to your score in the next few years.

When you want to improve your credit as much as possible, you can even take out secured loans and pay them off over the coming months. Getting a loan and paying it off without being late or missing payments will show potential lenders that you are getting your financial situation under control, making them much more likely to accept your application.

Additional Factors Worth Considering
Filing for bankruptcy gives you a clean slate and allows you to start over, but you will want to consider if getting another loan is a smart move. You can look at the factors that led to your bankruptcy and ask yourself if you can afford a mortgage payment. Learning to set and follow a budget is a great way to control your spending and ensure that you have enough income to take on additional debt. In addition to monitoring your money, you can also start a savings account that will provide a safety net if you fall into financial trouble.

Final Thoughts
If you are stressed and confused after bankruptcy and feel as though you will never own a home, you are not alone. Many people have faced and overcame this problem by rebuilding their credit and learning to maintain a budget. While you are waiting for time to pass, focus on taking control of your finances so that you won’t repeat the same mistakes in the future. As long as you have discipline and commit to a plan, you may be able to buy a home sooner than you thought possible.

About the Author: NVA Admin