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5 Tips on Getting a Mortgage Loan after Bankruptcy

By Veronica Nguyen · Apr 15, 2015 · Mortgage

5 Tips on Getting a Mortgage Loan after Bankruptcy

Image courtesy of Flickr, Sam Howzit

A bankruptcy will make it very difficult to attain a home loan. These 5 tips will help you re-establish your credit quickly in order to qualify for a home loan.

1. Rebuild Your Credit

Once you have received your bankruptcy discharge paperwork, it is important to begin building your credit as soon as possible. The following are some things you can begin doing towards credit repair:

  • Get an unsecured or secured credit card
  • Pay all of your bills on time
  • Monitor your credit report and credit score regularly
  • Attain a loan, of any size, you can afford to repay to establish payment history

2. Save for a Down Payment

Saving up a for a down payment for your next home will show lenders know that you have the ability to be responsible with your finances, even though you have recently gone through a bankruptcy. If at all possible, saving for a larger down payment of more than 20% of the home's listing price would be ideal. Be prepared to pay some loan costs out of pocket. Some of the ways you can start saving money after a bankruptcy are:

  • Start a savings account
  • Begin saving periodically (weekly, every pay check, etc.)
  • Create a spending budget and be sure to stay with it
  • Reduce any unnecessary expenses

3. Get a Co-Signer

Getting a co-signer for a home loan may help you qualify for a loan more easily. However, if you do get a co-signer make sure that you can make your payments on time, because you co-signer's credit will be negatively affected if you ever default on your payments. Lenders will be more willing to give you a home loan when you have a co-signer that has great credit history. The following are some people you can ask to be you co-signer:

  • Family
  • Close friends
  • People who trust you

4. Pay Off a New Loan

In order to established credit you can attain a small loan and pay it off as soon as possible to show lenders that you are on top of your finances. The following are ways that you can pay off a loan faster:

  • Make extra payments whenever possible
  • Make arrangements for Bi-Monthly (twice monthly) payments with the creditor
  • Use money earned from a second job, or doing odd jobs, for extra payments

5. Submit Loan Applications Online to Different Lenders

Once you have re-established your credit and have saved up for a down payment, you can apply for a home loan online. This will allow you to see what different lenders are offering you considering their credit and loan requirements. The following are reasons why submitting a loan application online is more beneficial than the traditional method:

  • Compare different lenders with only one application
  • Have time to consider offers at you own leisure
  • Ability to show offers to friends or family for a second opinion

Some Q and A's You May Have When Planning to Buy a Home After Bankruptcy:

Q: When can I get a home loan after filing chapter 13 bankruptcy?

A: You can apply for a mortgage loan two years after you have received your bankruptcy discharge paperwork. You may be able to qualify within twelve months, but you must show a satisfactory payment history and an explanation letter for the bankruptcy.

Q: When can I get a home loan after filing chapter 7 bankruptcy?

A: You can apply for a mortgage loan two to four years after you have received your bankruptcy discharge paperwork. You must show a satisfactory payment history and an explanation letter for the bankruptcy.

Q: Can I buy a home any sooner after a bankruptcy if the bankruptcy was due to a certain circumstances?

A: If you have a special circumstance and filing for bankruptcy was out of your control, depending on the lender, you may be able to qualify for a home loan sooner. For example, being laid off from a job would be considered a special circumstance.

Q: Will a bankruptcy have an effect on the terms of my loan?

A: When you file for a bankruptcy and try to apply for a loan, lenders will be cautious when considering you for an approval. The loan terms may not be as favorable as someone that has never filed for bankruptcy.

Q: What if a traditional lender doesn't qualify me for a mortgage?

A: If you have already tried to get qualified with a traditional lender and were denied, ask them to provide you with a reason why. You may want to try to apply with a "hard money lender" instead. These types of lenders offer much higher interest rates, but do so with very easy qualification requirements. Some up front fees may be required with lenders of this type as well.

Q: What will the lenders review when considering a home loan application after bankruptcy?

A: The following are some of the information the lenders will need to review:

  • Credit score
  • Credit report
  • Amount of down payment
  • Established credit lines and their payment history
  • Your bankruptcy discharge letter

Re-Establish Your Credit

Once you have filed for bankruptcy and you have been discharged, it is important to re-establish your credit. Lenders will want to see that you have the ability to make payments on your future loans. By displaying your financial responsibility to any lender after bankruptcy, you are showing them that you are a less risky candidate for the loan application than you would be otherwise.

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