Tips To Improve Your Chances Of Getting A Mortgage After Bankruptcy
Several common-sense tips apply, starting with addressing your finances to improve your credit score before you file for bankruptcy. Getting the financial house in as much order as possible before filing means you will start a challenging process with the highest credit score possible.
Other steps follow discharge and involve rebuilding credit after bankruptcy they fall under the umbrella heading: Get and keep your financial house in order:
Whats The Difference Between A Bankruptcy Filing Date And A Discharge Date
The filing date is the day you file a petition with your local bankruptcy court. The discharge date is the day youre no longer liable for the debts included in your bankruptcy. This date could be a few months after the filing date or several years later, depending on whether you file Chapter 7 or 13.
You Can Get A Mortgage After Bankruptcy Heres What You Need To Know
You do need to be aware that buying a home after bankruptcy is not the same as buying a home for the first time with no issues. There are two main factors:
- How long ago was your bankruptcy discharged, or your consumer proposal completed?
- How long have you been re-establishing your credit, and how extensive is that credit?
The mortgage options available to you depend on the answers to these questions. In a nutshell, you will be looking at either a mainstream or alternative lender .
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Crucial Steps To Mortgage Approval Post Bankruptcy
Step 1: Get Official Discharge Quickly Its no secret that good credit is vital when applying for a mortgage. The quicker you get discharged from your bankruptcy, the quicker you can start rebuilding your credit. Start by reaching out to your local bankruptcy trustee. They can help you find the best plan for a complete discharge in the shortest time possible. You can find a local bankruptcy trustee here.
Step 2: Review Your Most Recent Credit Score Check your credit score. You can get a copy of your report from Equifax and Transunion Canada. Pull both. Make sure that there are no surprises on your report, and that the debts included in your bankruptcy have been paid off. What if you find information in your report that is inaccurate or incomplete? You have the right to explain or dispute. Contact the credit reporting agency about their dispute resolution process. If you still do not agree with an item following the agencys investigation, visit TransUnion-explain or Equifax-explain to find out how you can add an explanatory statement to your report.
As a rule, its a good idea to request a copy of your credit report from the above two credit-reporting agencies yearly. Youre looking for correct personal information, financial information, and to ensure that you have not been the victim of identity fraud.
Tips To Qualify For A Mortgage With Chapter 13
Just meeting the 12month requirement for a government loan doesnt guarantee youll qualify.
You still need to meet lending guidelines for credit score, income, employment, and down payment, among other things.
These will all need to be documented and verified during underwriting.
And you may need to supply extra documents due to your Chapter 13. Lenders might require copies of your bankruptcy petition and discharge or dismissal documents.
Finally, make sure youve budgeted correctly for homeownership.
Remember that your mortgage payment will include taxes and insurance as well as principal and interest. If you put less than 20% down, it will also include private mortgage insurance or FHA mortgage insurance.
These added costs can increase a mortgage payment substantially.
Before you jump into the application process, set aside some time to think about your maximum budget for payments and how the cost of homeownership will fit in with your debt repayment plan.
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Save For A Down Payment
If you want to get a mortgage, its typically best to save as much as you can for your down payment. There are many benefits of making a larger down payment, including being able to get a better interest rate. Ultimately, the loan program you end up choosing will determine how much youll be required to pay for a down payment.
Secured Debt And Liens: What You Need To Know
A creditor is “secured” if it has the right to take a borrower’s property to satisfy the borrower’s debt. By contrast, an unsecured creditorsuch as a credit card or utility companyis limited to calling or sending letters asking for payment .
A lien can be voluntary or involuntary.
- Voluntary liens. Typically, secured creditors include mortgage companies and car lenders. In both transactions, the borrower voluntarily agrees to guarantee the loan by giving the lender an interest in the property purchased with the loan proceeds. For instance, when taking out a home loan, the borrower gives the lender a lien by agreeing to put up the house as collateral. If the homeowner falls behind on the payment, the bank can initiate a foreclosure proceeding, sell the home at auction, and use the proceeds to pay down the loan. A car buyer gives a lender similar lien rights when financing a vehicle. If the borrower doesn’t pay as agreed, the creditor can repossess the car, sell it at auction, and apply the money toward the loan balance.
- Involuntary liens. Not all liens are voluntary. If you fail to pay your income taxes, the federal government can take steps to obtain a lien against your assets without your consent . An unsecured creditor can do the same by filing a lawsuit and winning a judgment for the amount you owe. While most voluntary liens are limited to particular property, such as a home, car, or boat, an involuntary lien can extend to all of a debtor’s assets.
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Mortgage Loans You Could Qualify For After Bankruptcy
To get a mortgage after bankruptcy, youre not bound to a specific loan program. The key is being able to meet the requirements that each loan type has and figuring out with your lender which option works best for you and the home youre trying to buy. A few types of mortgage loans you might go with include conventional loans, FHA loans, VA loans, USDA loans, or a non-qualified mortgage loan.
Which Lenders Currently Accept Mortgage Applications From Discharged Bankrupts
There are approximately 20 different lenders who will consider applications from discharged bankrupts. Some of these are mainstream lenders and some provide more specialist services and products for individuals with more complex credit histories. As every lender and every prospective borrower is different, without understanding your particular circumstances it is impossible for us to say whether you would meet the eligibility criteria of some or all of these 20 lenders.
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Can Bankruptcy Get Rid Of My Mortgage Debt
Chapter 7 bankruptcy will likely eliminate your mortgage debt, but this means youll have to give up your home unless it qualifies for an exemption. Your lender still has the right to foreclose on the home to recover as much of the original mortgage amount as possible.
With Chapter 13 bankruptcy, youre able to retain assets like your home. Youll have a new plan in place to repay your debt. Just be sure youre making on-time payments, or youll put yourself at risk of foreclosure.
How Can You Qualify For A Mortgage After Bankruptcy
Whether you have gone through bankruptcy or not, your credit score is the most important thing when it comes to get approved for a mortgage. If you have a good credit score, you can more easily get a loan with a low interest rate. You can also follow these common tips for rebuilding your credit score:
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Bankruptcy And Mortgage What Happens To Your Mortgage After Filing
How does bankruptcy affect mortgage? A major concern for many homeowners contemplating Chapter 7 or Chapter 13 bankruptcy in Houston is whether they will lose the roof over their heads as part of the bankruptcy process.
The good news is that your mortgage company cannot raise your interest rate or change other terms of your loan as punishment when you file for bankruptcy in Texas.
When Can You Get A Home Loan After Bankruptcy
If you have been officially discharged or entered a debt agreement, there are a number of home loan options that might suit you. In some cases, we may be able to assist you with finalising a debt agreement or structuring debt consolidation into your home loan through refinancing.
While there is no restriction when it comes to applying for a mortgage after bankruptcy ends, it is important to assess your financial situation and seek advice when needed, to ensure that the new loan doesnt put you in the same situation you were in.
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Conforming Loan With Chapter 13 Bankruptcy
Its much tougher to get a conforming loan after Chapter 13 bankruptcy.
Fannie Mae and Freddie Mac the two agencies that set conforming loan rules are stricter than the government agencies. They will not allow borrowers to apply while working through a Chapter 13 plan.
Your bankruptcy must be either discharged or dismissed to qualify for a conventional mortgage. And theres a waiting period:
- Two years after Chapter 13 discharge date
- Four years after Chapter 13 dismissal date
Remember, discharge happens after you complete the 3 or 5year repayment plan.
So altogether it could take up to 7 years after filing for Chapter 13 before you can get a conventional loan.
Filers who fail to complete the plan may have their bankruptcy dismissed. They probably still owe their creditors and will have to wait at least 4 years from the dismissal date before they can apply for conventional financing.
Filers with multiple bankruptcies in the past seven years will have to wait at least seven years from their most recent discharge before applying.
Extenuating circumstances
It may be easier to buy a house after Chapter 13 discharge if your bankruptcy was caused by extenuating circumstances.
Extenuating circumstances are typically onetime events outside your control that have a serious negative impact on your finances.
Examples include a severe illness or disability, a company layoff, or the death of the primary wageearner.
Its Possible But Youll Need To Rebuild Your Credit Before You Apply
If its the American Dream to own a home, then going through bankruptcy or foreclosure very well may be the American Nightmare. But if youve filed for bankruptcy or been through a foreclosure at some point, all is not lost. Its still possible to obtain a mortgage in the future if you follow these steps.
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Applying For A Mortgage After Declaring Bankruptcy
Applying for a mortgage after declaring bankruptcy is not only possible, it happens all the time. When your bankruptcy is discharged, it means the chance to begin anew. All of your debts have been cleared away and you are given a new opportunity to reestablish your credit. It also means the beginning of accumulating financially beneficial assets.
If you find yourself in the position to purchase a new home and have a bankruptcy on your record, it is still possible to find a good rate. The big banks may make it difficult to borrow at the rate you feel comfortable with, but they are not the only answer.
When looking for a home after declaring bankruptcy, start with an independent mortgage broker. This is a great way to establish what you can truly afford and the best possible rates available for that purchase.
Believe it or not, you can actually qualify for todays best mortgage rates after declaring bankruptcy. To do this, you have to meet the following criteria:
- Your bankruptcy has been discharged for at least two years
- You have established credit for two years of that duration
- Having the ability to put a five percent down payment on the property on which you wish to buy
Keep in mind that this is the easiest route to go after declaring bankruptcy. If you are still within that two year discharge window, it can still be possible to obtain a mortgage. To do this, you will likely need a larger down payment and may also need to pay a much higher interest rate.
Navigating Your Bankruptcy Case
Bankruptcy is an unusual area of law because it’s essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can’t skip a step.
The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you’ll need to complete the petition.
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What Are Todays Mortgage Rates
Todays mortgage rates are at historic lows.
Typically, home buyers applying after Chapter 7 bankruptcy will be charged higher interest rates. But shopping around in todays low-rate market could help you net a fair deal on your home loan.
If youre thinking about buying a home, check with a few mortgage lenders to verify your home loan eligibility and find out what rates you qualify for.
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How Do I Increase My Chances Of Being Approved For A Mortgage After Bankruptcy
Getting a mortgage after bankruptcy can be difficult but not impossible, with many highstreet lenders declining applications with previous bankruptcy. Our specialist brokers and the lenders they work with believe that everyone deserves consideration, and could help you find a mortgage even after bankruptcy.
Some lenders will consider your mortgage application immediately after youre discharged. Others might require you to have been discharged for at least 12 months, if not for several years. The main issue facing borrowers is their deposit amount. The longer since your discharge, the more likely a lender will be to accept you for a higher Loan to Value product.
Speak to us today about your situation and we can advise on the right path for you.
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Which Loan Providers Will Think About Applicants With Present Bankruptcies
Possessing a recently available bankruptcy proceeding could make it tough to are eligible for credit with many lenders. However, these lenders may think about individuals with a previous case of bankruptcy whenever they encounter his or her different qualifications standards.
To get the best offer, comparison shop and test the charge and phrases carefully. Calculate which offer is ideal and make certain youll be able to to satisfy the compensation arrange. A person dont need to develop a negative personal line of credit just after you clear your record with a bankruptcy.
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Waiting Period For Chapter 13 Bankruptcy
Chapter 13 bankruptcy waiting periods are generally shorter. For instance, after a Chapter 13 discharge, as long as youve made 12 qualifying on-time payments, youll only need to wait a day to refinance a government-backed loan.
The waiting periods to refinance after a Chapter 13 discharge are:
- FHA, VA, and USDA loans: 1 day with 12 qualifying on-time payments
- Conventional loans: 2 years
- Jumbo loans: 7 years
With conventional loans, if you dont complete the terms of your repayment plan, the court can dismiss your bankruptcy, and youll have to wait four years after that date to refinance your mortgage.
Tip:
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Waiting Period After Chapter 7 Bankruptcy
Those filing Chapter 7 must sell their assets to pay off unsecured debt, like credit card debt, medical bills and personal loans.
With Chapter 7 bankruptcy, FHA and VA mortgage regulations require a two-year waiting period from the time of bankruptcy discharge. Thats the point the court released you from your debts, not the time you filed. A Chapter 7 discharge usually takes 6-8 months after filing.
USDA loans require a three-year waiting period and conventional loans require a four-year waiting period.
A Chapter 7 bankruptcy stays on your credit report for 10 years.
Tips For Applying For A Mortgage After Bankruptcy
The last thing youd want to do after bankruptcy is to rush into a mortgage without speaking to a specialist. Youll be considered as a high-risk applicant and will therefore need to proceed with caution.
Ways to improve your chances of a mortgage after bankruptcy include:
- Check your credit file
- Only apply with suitable lenders
- Save as much as you can for a deposit
- Speak to an adverse credit specialist
- Take steps to improve your credit score
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