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Mortgages After Bankruptcy

December 26th, 2013

Mortgages After Bankruptcy

Tips for Getting a Mortgage After Bankruptcy

Years ago, those who filed for bankruptcy would have a hard time getting a mortgage for the entire 7-10 years their bankruptcy appeared on their credit. As bankruptcy became more common throughout the 1990s and 2000s, lenders began to change their views and relax their lending standards. Bankruptcy is now viewed as a fresh financial start, and if you can prove you’re making the most of it for the first 2-3 years, you shouldn’t have much trouble getting a mortgage.

Monitor Your Credit Report

Once your bankruptcy has been discharged, you need to make sure all of your former accounts are now reporting as discharged on your credit report. Now that your credit slate has been wiped clean, even one account continuing to report as delinquent could completely ruin your credit recovery.

If you find any mistakes on your credit report after your bankruptcy, correct them right away. Continue to monitor your credit report on a regular basis to ensure it is accurate. Signing up for a credit monitoring service is a good idea, and there are many credit cards that offer credit monitoring for free as part of your account.

Obtain and Manage New Credit

Most people think having a bankruptcy on their credit report keeps their score down, but the actual problem is you suddenly have no credit history at all. Once you establish some credit and show lenders you can keep up with your bills, your bankruptcy will have less of an impact on your borrowing capabilities.

Establishing new credit usually begins with obtaining a secured credit card – one where you put some money down on a card in order to have a revolving credit account. If you manage this well, it will allow you to qualify for an unsecured card, then an auto loan, and finally a mortgage. Mismanaging your new credit will send your new credit score down in a hurry, and will put off your mortgage prospects for years.

Apply for the Right Mortgage

Getting a mortgage after a bankruptcy can be a little tricky, but it’s not impossible if you know whom to ask. Nearly every lender is going to want you to be at least 2 years out from a bankruptcy and 3 years out from a foreclosure before they’ll consider you for a new mortgage. Once you’ve passed these benchmarks, some lenders will be willing to consider you, especially for FHA or VA loans. But be aware, you’ll need to be open about your past financial troubles and prepared to avoid the same problems in the future.

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