January 17, 2020

Getting a Mortgage After Bankruptcy.

Getting a Mortgage After Bankruptcy.

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Filing for bankruptcy does not mean the end of your home buying dream. Many lenders have made the requirement for debts easier,  opening up various opportunities for bankruptcy filers to get a home loan sooner than in the past. 

So, if you are still worried over the question of “Will I ever be able to get a home or a car again?” The answer is simple. Yes! You will, and probably sooner than you have anticipated. 

There are various lenders like car creditors, who would like to work with you right after you come out of your bankruptcy. It is possible that you will pay a higher interest rate, and the general terms will not be as advantageous as you could otherwise manage to get, but the good news is that credits are available for most former bankruptcy debtors.

Waiting Period for Mortgages after Bankruptcy.

One of the first obstacles for applying to a home loan after bankruptcy is the “waiting period” as well known as the “seasoning period” required by lenders. The main idea of the waiting period is that lenders will make sure you had enough time to restructure your finances and had a chance of rebuilding your credit score. Correspondingly they have constituted waiting periods allowing you to demonstrate that you can safely handle mortgage payments. 

The waiting period will typically be as little as one year, or as long as after four years. During this waiting period, you have to make sure to keep your new developing credit card clean. If you do not manage to keep up the good credit line after your bankruptcy, you might as well have to restart the clock. For example, in a case when you close your mortgage in a year after your bankruptcy case is discharged, you will have to undergo another “waiting period” before you can qualify. Apart from that, every guarantor or lender has its own set of requirements and guidelines that you have to follow.

Check Your Credit Reports

Your first step towards getting a new mortgage is to check your credit reports. With the use of your credit reports also make sure that your discharged debt is “included in bankruptcy.”  Take into account that any credit cards that were discarded but not included in the list, can do even more harm to your credit.

Federal Housing Authority (FHA) Loan

FHA has different guidelines for Chapter 7 and Chapter 13 bankruptcy. Let’s analyze them in detail separately.

Chapter 7:

In case you filed a Chapter 7 straight bankruptcy, typically you will have to wait around two years after the date of your discharging before you can apply and qualify for a loan. Quick reminder, that the discharge and the filing dates are different. Typically, the count will send out the discharge paperwork before your case is closed. 

  • Take into account that there will be a requirement for your credit score when you open a new account. However, meeting the requirements will not be as much of a difficulty as you might think. At the same time, if you open a new credit account you should show that you are doing your payments on time and you have a good credit history. 
  • If you want or have to avoid the requirement for a credit score, FHA has an alternative rule. You can choose not to open any credit account after bankruptcy, and still qualify for a loan.  
  • Sometimes it happens that people file for bankruptcy due to the fault of someone else. If this sounds familiar to your own case and you can demonstrate enough proof that bankruptcy was beyond your control you will be able to reduce the waiting period to twelve months. In addition to that, you will still have to demonstrate that you have responsible handled your financial affairs after the bankruptcy.

Chapter 13: 

The better news is waiting for you in terms of the Chapter 13 case. You will have to pay down or pay off your debt to the court during a three to five years period. In fact, you do not even have to wait two years after your bankruptcy to be able to apply for a loan. Moreover, you don’t even have to wait until the bankruptcy is over. Just remember, unless you have made your Chapter 13 payments for a year on time, you are free to apply and qualify an FHA loan.  

Take into consideration that while you are in a Chapter 13 case, bankruptcy court governs your main financial life. This is important to remember because, even though you are approved by FHA or by your bank, the Chapter 13 trustee and the bankruptcy count should still weigh in to secure that you are not taking a big obligation that does not match your financial abilities.