According to a report released by the Administrative Office of the U.S Courts, more than 772, 594 Americans filed for bankruptcy in 2017. That’s a huge number, right?
Despite the fact that bankruptcy is prevalent in today’s world, it’s still a topic that most people don’t want talk about. This makes it difficult for people who have filed for bankruptcy to ask questions or seek assistance.
In this piece, we’re going to answer the fundamental question everyone asks after declaring Chapter 7 or Chapter 13 bankruptcy: can one get a mortgage after bankruptcy?
If you recently filed for bankruptcy and are wondering if you’ll ever own your dream house, take it from us, you can.
Here is how.
1. Ensure Your Bankruptcy Is Discharged
It’s difficult and close to impossible to get a mortgage if your bankruptcy is not discharged. For this reason, it’s essential to get a bankruptcy discharge after the conclusion of your case.
What’s a bankruptcy discharge?
Well, this is a court order that signifies the end of your case and confirms that the creditors involved in your case will not be able to initiate legal proceedings against you in the future.
If you haven’t received your discharge order, there are three ways to find it:
- Wait for the court clerk to mail it to you.
- Contact the court clerk and inquire about it.
- Use PACER or Public Access to Court Electronic Records.
Having a discharge order shows that you have ‘no debt’, making it easy for you to get a home loan after bankruptcy.
2. Scrutinize Your Credit Report
Once you get a discharge order, focus on your credit report. Scrutinize it.
If there are loans that you paid back but are still on your report, contact the credit company and have it corrected. You should also look for other errors in your report.
If you notice a mistake, write a letter or an email to the credit agency disputing the error.
Also, you should organize your credit report. This will help you come up with a plan to remove any negative information from your report over a period of time.
3. Prove to Lenders That You Can Be Trusted to Pay Back Your Loan
Bankruptcy affects your reliability, and you have to do everything possible to prove that you can pay creditors the money you owe them.
There are two ways of proving to lenders that you can be trusted to pay back a loan: get an installment loan or secured credit cards.
An installment loan is a type of loan where you’re required to make payments every month. If your credit score has been damaged in the past, a bad credit loan will give you the highest likelihood of approval.
If you go for an installment loan, make sure you pay your monthly installments on time. Paying your loan on time will make lenders trust you more, making it easy for you to qualify for a home loan after bankruptcy.
A secured credit card is simply a credit that is backed by the cash deposit in your bank account. These differ from unsecured credit cards for bad credit, that do not require money down, but carry higher costs.
The cash deposit you make equals your credit limit. If you deposit $500, for instance, you’ll have a credit limit of $500. You can only extend your credit limit by adding to your deposit.
However, the issuing bank may sometimes reward you for timely payments and extend your credit line without asking you to add to the deposit.
4. Improve Your Credit Score
Yes, using installment loans and credit cards can help you improve your credit score, but you have to do more to make your score mortgage-worthy.
Here are some of the best methods to boost your score to a level that will capture lenders’ attention.
- Don’t borrow too much.
- Pay your bills on time.
- Don’t change jobs; stay on the same for a least 2-3 years.
- Make on-time or even early credit payments.
- Whenever possible, pay back more than the set monthly payment.
When you get credit, make sure you only use a small portion of it, and do everything you can to pay the cards off on a routine basis. One of the best options is to use a personal loan with no credit check to take out a longer term loan instead of carrying your balance on the card.
Taking care of any outstanding tax liens will also increase your chances of getting a home loan after bankruptcy.
5. Increase Your Down Payment
A big down payment is enough to convince a lender to give you a mortgage after bankruptcy.
The best way to build a substantial down payment is to open a savings account and start saving immediately. The bigger the down payment you have, the more a lender will want to give you a loan.
Saving money will also help you cater your closing costs.
6. Wait for at Least 24 Months
Once you’ve done the things we’ve discussed above, be ready to wait for at least two years to apply for a mortgage. Most mortgage lenders will consider your mortgage application 24 months after you receive your bankruptcy discharge order.
You may be able to get a home loan after bankruptcy sooner, but the interest rates and the terms and conditions won’t be as friendly as they would be if you wait for 24 months.
While you’re waiting, continue boosting your credit score. After the two years, identify the leading lending institutions and start applying for a mortgage.
To make the process simpler and saner, be fully prepared and gather all your financial documentation early.
Your lender will also ensure you meet their criteria before they accept your mortgage application. You should, therefore, learn about their application processes and requirements before you apply for a mortgage.
You should also avoid expensive purchases and new credit during the process.
Most importantly, choose your lender wisely. Make sure the lender is well-established and has friendly rates since most lenders charge high-interest rates to borrowers who had filed for bankruptcy.
Wrapping Up on Getting a Mortgage After Bankruptcy
Despite the difficulties that you’re likely to face, declaring a Chapter 7 or Chapter 13 bankruptcy should not kill your dreams.
It’s not a life sentence. You can still get a mortgage after bankruptcy and buy your dream house. All you have to do is follow the tips we’ve discussed above.
If you’re looking for a loan, you can apply here. We’ll help you find a lender with favorable terms and interest rates.