Bankruptcy

Recovering After Bankruptcy ? Getting a Mortgage Again

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After you?ve filed for bankruptcy, securing a loan may be challenging as many lenders will be very hesitant to offer a new secured loan.  In some situations, there may be a few lenders who are willing to give you a fresh start but they?ll usually require income verification and specific down payments.  (The average down payment is 3%, but in a post-bankruptcy situation, more may be required by the lender or may allow you to secure better rates and terms.) Other factors potential lenders will consider when evaluating a mortgage application will be employment history and debt to income ratio.

 Although recovering from bankruptcy is possible, it is a time consuming process and usually you?ll need to wait at least 24 months after the discharge of your bankruptcy before you try to secure a mortgage again which is nominal compared to the up to ten years the bankruptcy can remain on your credit file.  (Chapter 13 bankruptcy can stay on your file for up to seven years and a Chapter 7 bankruptcy can stay on your file for up to ten years.)  The day after your discharge, you can start to improve your credit score; if you?ve made substantial improvements to your credit score in the first year, you may be able to disregard the two year rule.

To demonstrate to potential lenders that you?ve modified your financial situation, it?s important to always pay your bills on time.  You should keep open accounts (both loans and credit cards) but with modest limits and never exceed 30% of their limit, being sure to pay them off in full at the end of every month.  This will help to raise your credit score and show potential lenders you?ve reformed as quickly as possible.   After you?ve completed a bankruptcy, defaulting on loans or receiving charge-offs is very bad and will make it nearly impossible to get a mortgage again. 

Some financial experts recommend hiring a mortgage broker to assist you after your bankruptcy in finding a new mortgage.  The proponents of such options say that by hiring such a person, it?ll make the process much smoother as they?ll act to compile and disseminate all the information for you.  There are equal numbers of analysts to support both obtaining a mortgage broker and using a online option and the difference between the two seems to be how rapidly you want results and how much time you have to personally invest in the process.

When it comes time to search for a mortgage after bankruptcy, there are two distinct avenues to pursue: online and traditional lenders.  While working with a traditional lender allows you to work face to face with your lender and discuss different options with them, online lenders often specialize in mortgages for customers after bankruptcy and allow you to compare several different rates all at once.  Many people who keep a clean credit history after bankruptcy will be able to recover and get a mortgage and can even secure adequate financing for what they need.

Full post as published by Bankruptcy Articles & Blog on June 11, 2009 (boomark / email).