Life Events

Getting a Mortgage After Bankruptcy

Once you’ve made it out of the woods, you can work toward another mortgage.

Oct 14, 2014

If you have been through Chapter 7 proceedings, the most common type of bankruptcy filing for individuals, it can seem impossible that you’ll ever qualify for another home loan. Getting a mortgage after bankruptcy is possible, but you will have to be prepared to wait, build your credit back up and consider your options strategically.

Discharge Your Bankruptcy

The first and most important thing to do is to discharge your bankruptcy. In most cases there is a set amount of time that you will have to wait before you qualify for a home loan, and this clock starts ticking after the last derogatory event.

Get your bankruptcy discharged, finish any credit counseling programs and look over your credit report to ensure that all debts have been canceled and paid back, and that nothing is on there that should not be.

Determine Your Wait Time

There are a variety of circumstances that can alter the time you will have to wait after a bankruptcy before getting a home loan, but we’ll cover the most common:

  • Two years — In a normal Chapter 7 bankruptcy, which discharges unsecured consumer debts, you will have to wait two years before getting a home loan.
  • Three years — If you included your home in a bankruptcy filing, it will take you three years to get a home loan with government financing and seven years with conventional filing. In this case it is important to find the foreclosure date or the last date of the short sale, depending on which occurred, as this is your last derogatory event.
  • One year — There are some extenuating circumstances under which your wait time can be as short as one year. These may include job loss, reduction of income, illness or death in the family, depending on individual circumstances.

Build Up Your Credit

Your wait time for a mortgage is relatively static, but this doesn’t mean that you shouldn’t be building up your credit. Your credit score determines the terms at which you can borrow money, including interest rate and down payment. After a bankruptcy, your credit score is usually not very good, so it is crucial to work toward building it back up. There are a few good options to start with immediately.

  • Pay bills on time — Your bills are still coming, so they are the first thing to start with. Paying your bills on time every month is an important part of building up credit.
  • Remove tax liens — If there are any tax liens on your income, it is time to remove them. If paying that money was easy, you would have done it to begin with, but save up and pay them off ASAP. You’ll feel better and your credit will thank you.
  • Use a secured credit card — After a bankruptcy, it is unlikely that a bank will give you a normal credit card. However, you can receive a secured credit card by depositing money in the bank against which you can draw. Remember to continue paying your balance every month and you’ll have better credit before long.
  • Consider an installment loan — You may still qualify for installment loans – loans in which you pay a fixed installment each month. While you shouldn’t buy anything you don’t need, it may be better for your credit score to get an installment loan on a necessary purchase rather than paying the whole sum up front.

While emerging from bankruptcy can be a long and difficult road, it is possible to get a mortgage on good terms within just a few years if you are strategic and careful with your money. And once you’ve made it out of the woods, you can work toward another mortgage. Our calculator can help you determine what you can afford.
 

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