How Long After Bankruptcy Can You Get A Car Loan
You can get a car loan immediately after filing bankruptcy. In fact, youâll probably get quite a few ads from auto lenders and car dealerships even before your 341 meeting takes place. The key is to be smart about it and if you can, wait before getting a new car loan.
Why does it make sense to wait?
You want to make the most of your fresh start and the best way to do so is by setting yourself up for best loan terms for your auto loan.
Getting better terms, like a lower interest rate, is hard with bad credit and a low credit score. Immediately post-bankruptcy, you likely have bad credit. As a result of your subprime credit rating, the loan terms youâll be offered for this new debt wonât be ideal.
Can I buy a cheap car for cash to get through the next 6 – 12 months?
The car you can afford now may not be pretty, but if it gets you around itâll be worth it in the long run because it buys you time to:
rebuild your credit , and
save up money for a down payment
Bankruptcy Follow These 6 Crucial Steps To Mortgage Approval
When things go wrong, as they sometimes will, when the road youre trudging seems all up hill, when care is pressing you down a bit, rest, if you must, but dont you quit. ~ Anonymous
Those words perfectly describe todays topic. If youve been through a recent bankruptcy, you know all too well the financial challenges that exist after. One of the biggest challenges is getting a mortgage.
So what do you do? Is it possible to emerge from bankruptcy and buy your next home? Of course it is!
But there are a few steps you need to follow first. If you want the shortest line to mortgage approval success, follow the steps outlined below.
But first, lets take a quick look at time frames. How long before most lenders consider you as an applicant? I wrote a blog post on this very topic earlier this year. You can read the entire post at Bankruptcy: How Long After Can You Apply For a Mortgage. Basically, lenders usually want you to be discharged for 2 years with re-established credit. This usually means 2 trade lines of combined $2500-$3000 reporting for 24 months with no derogatory information.
If your loan-to-value is low, and your income is stable with good job tenure, some lenders will consider approving the loan before the 2 year mark. Heres what you can do starting tomorrow to get lenders to consider approving your loan post bankruptcy.
Fha Loan After Bankruptcy Waiting Period & Requirements
Bankruptcy can be an event that would disqualify you for many loan types, however, FHA loans are generally more forgiving when it comes to bankruptcy, and its possible to qualify for an FHA loan even if youve filed for bankruptcy in the past.
Even so, there are requirements to meet depending on the type of bankruptcy filing. The requirements are slightly different whether youve filed for a Chapter 7 or Chapter 13 bankruptcy.
In this article, Im going to discuss the conditions in which you can apply for FHA financing even after bankruptcy. Im going to cover the waiting period for each bankruptcy chapter I mentioned as well as the other requirements of FHA loans.
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How To Reestablish Credit After Bankruptcy
Once the bankruptcy process is over, reestablishing and maintaining is key to your financial health. Lenders will be looking for zero delinquencies postbankruptcy.
While you work to build new credit, dont go overboard opening an extensive number of accounts, as this will work against you, advises Carey. Usually, opening just a couple of revolving credit lines and paying them in a timely manner over the course of 12 months helps to increase credit scores back to an acceptable level.
Get A New Credit Report
First, before you apply for a new credit card you should confirm you have an accurate credit report. You can obtain a copy from a credit bureau, such as Equifax or TransUnion.
A credit report contains information such as:
- details about your credit cards and loans, including: when you opened your accounts, how much you owe, and when you make or miss payments
- personal information including if you have ever filed for bankruptcy.
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You May Need A Credit Score Of 500 Or Higher To Buy A House
The waiting period and loan approval are essential factors, but some loan officers will not consider you until you rebuild your credit score. Credit scores typically range from 300 to 850.
For each type of loan, you need a credit score of the following:
- FHA loan: 500+
- VA loan: no minimum credit score
- USDA loan: 640+
- Fannie Mae or Freddie Mac: 620-640 is the lowest they will accept
If your bankruptcy was years ago, but no one will loan to you, you may have options. There could be misinformation on your record or an outdated credit score.
Talk to a bankruptcy attorney about the issues you face in the home buying process to learn about your options. A new home is attainable within one to two years after bankruptcy if you take the right steps and seek legal guidance during the bankruptcy journey.
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How Long After Bankruptcy Should You Wait Before Buying A House
Most people applying for a loan will need to wait two years after bankruptcy before lenders will consider their loan application. That said, it could be up to a four-year ban, depending on the individual and type of loan. This is because lenders have different seasoning requirements, which is a specified amount of time that needs to pass.
Fannie Mae, for example, has a minimum two-year ban on borrowers who have filed for bankruptcy, says David Reiss, professor of law and academic programs director at the Center for Urban Business Entrepreneurship at Brooklyn Law School.
The FHA loan, on the other hand, has a minimum one-year ban in place after a bankruptcy. These bans, or seasoning periods, are typically shorter with government-backed loans than with conventional loans.
The time is measured starting from the date of discharge or dismissal of the bankruptcy action. Generally, the more time between debt discharge and the loan application, the less risky a once-bankrupt borrower looks in the eyes of a mortgage lender.
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Can You Buy A House After Chapter 7 With A Co
Yes, having a co-signer can improve your chances of getting a mortgage after a bankruptcy. But its far from a sure thing. Since lenders typically use the lower credit rating of the co-signer and applicant, you could still be facing an uphill battle.
Lets say you do find a mortgage lender whos willing to proceed with your loan because you have a co-signer. In this case, its important that your friend or family member understands the risks involved with co-signing your application. This person is basically responsible for making loan payments if you default at any point.
Something else we should probably mention a co-signer and a co-borrower are not the same.
Considerations With A Car Loan After Bankruptcy
Your credit reports are a history of how well youve managed your finances. Unsurprisingly, bankruptcy will lower your credit scores.
The effect on your scores depends on your credit before bankruptcy. If you had high credit scores and a good credit history, youll likely see a significant drop in your scores. But if your credit wasnt strong to begin with, the impact to your scores may not be as big. Another factor is the number of accounts included in your bankruptcy the more accounts included, the bigger the hit to your credit scores.
These changes to your credit can pose some problems as you try to qualify for an auto loan.
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Write A Letter Of Explanation
Your lender takes a careful look at your finances when you apply for a mortgage. Every time a lender issues a mortgage, they take a risk. Lenders need to know that youll make your payments on time every month. Of course, a bankruptcy on your record is a major red flag.
You can increase your chances of getting a mortgage after bankruptcy by writing a letter of explanation. A letter of explanation tells your lender more details about your bankruptcy and why you needed to declare bankruptcy.
You might want to include details on the circumstances that led to your filing and how your financial life has changed since then. Also, explain the steps youve taken to prevent a future bankruptcy as well like paying off debt and building an emergency fund.
A letter of explanation isnt a requirement to get a mortgage after bankruptcy, but it can help your lender see the bigger picture instead of just a set of numbers. Include your letter of explanation with your mortgage application when you request a preapproval.
What Are Fha Loans
FHA loans are mortgages backed by the Federal Housing Authority, designed for people who may have trouble getting a conventional loan because of a poor credit history or income. FHA loans have easier credit requirements and lower down payments.
Since the U.S. government backs the loans, lending institutions are more willing to offer them to applicants with poor credit scores, although the lower your credit score, the harder it can be to find a lender.
A borrower with a FICO score of 580 can qualify for an FHA mortgage with a down payment of 3.5% and someone with a 10% down payment can qualify with a 500 score. The lower the score, the higher the interest rate and the harder it may be to find a lender. While applying with a credit score less than 600 is possible, less than 2% of FHA mortgage borrowers had a credit score that low early in 2021.
The waiting period to get an FHA loan after a bankruptcy without extenuating circumstances is:
Chapter 7 Two years from the time of discharge.
Chapter 13 Two years if plan payments have been made on time and the trustee of the bankruptcy gives an OK.
Some banks have a three-year waiting period, which overrules the FHAs waiting period.
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Buying A House After Bankruptcy: How Long Will You Need To Wait
You can buy a house one to two years after filing for bankruptcy if you rebuild credit and avoid new debt.
Filing a Chapter 7 or Chapter 13 bankruptcy will show on your credit report and negatively affect your credit score, but that does not mean you can’t own a home while you work to improve your credit. Waiting seven to ten years until the bankruptcy is off your record is out of the question for many people.
In some cases, filing for bankruptcy can actually be the first step towards purchasing a house. If you choose to work with a bankruptcy attorney, they often know real estate agents and mortgage lenders who have worked with people who have a bankruptcy on their credit history.
Fha And Va Standard Loan Requirements
Both FHA and VA guidelines carry similar standard waiting periods for mortgage after bankruptcy. These can change depending on your circumstances .
You can apply for an FHA loan or a VA mortgage after your Chapter 7 bankruptcy has been discharged for two years.
Chapter 13 bankruptcies are viewed a bit differently. FHA and VA allow homeowners to apply for a mortgage while they are actually still in bankruptcy. At least one year must have passed since filing, and applicants must have made at least 12 on-time bankruptcy payments. The bankruptcy court or trustee must also approve the new mortgage.
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Building Up Your Credit
The most important thing you can do during the waiting period for your USDA loan is to build up your credit. Most lenders would like to see a credit score of at least 640. If you claimed bankruptcy not that long ago, your score could be significantly lower than 640. The waiting period offers you plenty of time to fix it.
In order to build up your credit, you need to prove that you are worthy. Because many creditors will not want to extend credit to you right away, you may have to start with secured credit. This means you provide the creditor with a down payment equal to your credit limit. For example, if you have a $500 credit limit, you give the creditor $500. They keep this money in an escrow-type account. They do not use the money unless you default on your loan. If you make on-time payments, the deposit remains untouched. In the meantime, the credit card company reports your payments to the credit bureau. Any timely payments help to beef up your score.
Once you have a secured credit card for a while, you can start applying for other types of credit. This could mean unsecured credit cards and/or personal loans any type of credit which will report to the credit bureaus. No matter the type of credit you take out, make sure you make your payments on time and pay them off as quickly as you can. This can help your credit score to increase faster.
Getting A Usda Mortgage After Bankruptcy Chapter 13
Another type of bankruptcy you can file is the Chapter 13 BK. In this case, you dont write off your debts. Instead, you create a repayment plan to pay the debts. The trustee overseeing your case will handle your payments. You make one monthly payment to the trustee and he distributes the money to the appropriate debtors. The USDA requires you to wait 12 months after filing for Chapter 13 to apply for a new loan. You must provide proof of 12 months worth of timely payments of the BK in order to qualify. You must also gain the trustees approval to add a new loan to your debts.
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Getting A Mortgage After Bankruptcy
Bankruptcy doesnt have to put an end to your dream of owning a home it could happen as early as a year after bankruptcy discharge.
The key is to take positive steps with your credit and get back your financial footing. There are a lot of balls to juggle when getting a mortgage after bankruptcy. Besides the variety of mortgages available, all with their own rules, there are also different types of bankruptcy. Both factor in to how long you have to wait before you can apply for a mortgage after bankruptcy is discharged.
Another factor is you what led to your bankruptcy, how you have handled your finances since and how you plan to handle them going forward.
Whatever the length of the waiting period, use that time to do the work that will help you qualify.
A mortgage after bankruptcy can mean higher interest rates and a more expensive mortgage. Improving your credit score after bankruptcy will help counter that.
Bankruptcy Followed By Foreclosure
Depending on your particular financial situation, existing homeowners may essentially give back their home during the bankruptcy process. Others may lose theirs to foreclosure months or even years after the fact.
Since foreclosure typically requires prospective VA borrowers to wait at least two years before obtaining a home loan, a common concern is that veterans will have to wait four years or more to move forward. That’s not necessarily the case.
These situations are always viewed on a case-by-case basis. You can view some common scenarios here.
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Fannie Freddie And Ginnie
Most conventional loans in the United States are owned by or insured by the government-sponsored enterprises Fannie Mae, Freddie Mac, or Ginnie Mae. These backers have similar loan eligibility requirements for borrowers who have filed bankruptcy cases. These are guidelines. Your mortgage lender or mortgage broker can help you with the specifics.
In addition to a waiting period, these organizations require that borrowers demonstrate they have re-established credit after the bankruptcy.
Chapter 7: The waiting period is 4 years, or 2 years with extenuating circumstances . An example of extenuating circumstances would be a layoff and extended unemployment, or medical issues.
Chapter 13: The waiting period is 2 years from discharge and 4 years from dismissal, or 2 years from dismissal with extenuating circumstances.
If you have more than one filing within the past 7 years, the waiting period is 5 years from the most recent discharge or 3 years with extenuating circumstances.
Conforming Loans Versus Government Loans
Conforming loans are conventional mortgages that are funded by private lenders and sold to investors by Freddie Mac and Fannie Mae. They are called conforming loans because they must conform to guidelines established by Fannie and Freddie.
In general, conforming home loans are harder to get following a bankruptcy. Their waiting periods are longer unless you can prove that the bankruptcy was not due to financial mismanagement on your part. However, conforming wait periods may be shorter if there are extenuating circumstances and there was a foreclosure included in the bankruptcy.
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