Getting a Mortgage after Bankruptcy

Getting a mortgage after a bankruptcy is difficult, but can be an attainable goal. Bankruptcy not only hurts your credit score, but also shows up on your report as a public record derogatory account for seven to ten years. In order to obtain a mortgage in the next few years after a bankruptcy, then you need to start the day after your bankruptcy is discharged to begin rebuilding your credit history. Most lenders will not offer you a mortgage until two years after the date of a bankruptcy discharge.

Pay on Time

Any lines of credit that are still open after a bankruptcy are an important foundation to your credit rebuilding. Credit scores are based largely on length of history, so if you have an open line of credit, like a car loan, then paying it on time should be a priority.

Obtain New Credit

You will need to have a credit card on your credit report to help get a mortgage. Because it is so difficult to get a card after a bankruptcy, you will need a secured card. These are great for rebuilding credit. The bank will ask for a deposit. Then, the money will be deposited into a savings account for as long as the card is secured. Your limit will be the amount of the deposit. You cannot spend more than your initial investment. The bank uses this money to reduce their risk. Once you have paid that account for six to twelve months, you will begin to receive offers for traditional cards.

Save For a Down Payment

If your credit is not up to par, then you need compensating factors in your favor to help with a loan approval. For a mortgage, this would be a large down payment. There are some mortgages called hard money loans which you can obtain without a credit check, but these mortgages require at least 30 percent down. Saving for a down payment is going to be the best way to ensure a mortgage approval.

Find the Best Mortgage for You

There are mortgage products specifically designed for those with less than perfect credit. If you are a borrower with poor credit, you are not going to be able to get a conventional mortgage like someone with excellent credit. You would be considered a sub-prime borrower. However, there are options for you. The best one is a FHA loan. 

FHA is a government backed loan which is available to anyone with decent credit for at least two years. FHA requires 3.5 percent down. FHA offers Adjustable and fixed loans. They are great loans that have interest rates that are as good as a conventional loans. If you are a veteran, you can also check into a VA loan which requires no money down.

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