Getting A Mortgage After Bankruptcy
Before you can qualify for a mortgage after bankruptcy, there is a waiting period. However, many people are surprised to find out they can qualify for a home loan just a couple of years removed from bankruptcy. And even sooner if they had extenuating circumstances that led to the bankruptcy like a loss of income or medical condition. With the FHA back-to-work Program you may be eligible to get a mortgage just 12 months after your bankruptcy is dismissed.
Chapter 7 Bankruptcy Waiting Periods
- FHA loans: 2 years from discharge date
- VA loans: 2 years from discharge date
- USDA loans: 3 years from discharge date
- Conventional loans Freddie Mac and Fannie Mae: 4 Years
Chapter 13 Bankruptcy Waiting Periods
- FHA loans: Must be discharged before applying
- VA loans: Must be discharged before applying
- USDA loans: Must be discharged 1 year before applying
- Conventional loans: Must be filed 4 years before applying, dismissed 2 years before applying
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Is Your Credit Score Error
Make sure your Fico score stays in alliance with your improving credit report. Think of it this way the decision to lend you a loan based on your creditworthiness relies on this score.
- According to the company, over 90% of top lenders use these scores
- When it comes to financial decisions, Fico scores are the fastest and most efficient measuring tool
- It works in favor of both lenders and the consumers. As a result, lenders trust this score completely
- Collects information from three major credit bureaus and gives an original three-digit score
- Keep a close eye on your scores, with 500 and lower being poor and above 800 being exceptional
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What To Do First To Start Rebuilding After Bankruptcy:
Organize all of your bankruptcy discharge information: After the bankruptcy, you will need all the paperwork you were provided for your discharge. If you lose them you can pay to get them online. It is important to keep all the paperwork, notes and debt information along with all the certificates you earned. The three most important papers are: the petition, notice of filing, and discharge.
There are several reasons to have these papers on hand. Your new lenders will want to see exactly what kinds of debt you filed for. The second reason is an old collector may come calling and you can then prove the debt is discharged.
That information can be seen on the credit report, but you do not want to risk errors or any creditor seeing more than they need to see to satisfy another loan.
Develop Good Credit Monitoring Habits: You are able to obtain your credit reports free annually. Do this religiously and make it a habit to monitor every piece of information on it to ensure it is correct. Any little detail can cost you going forward and post discharge is not the time to have that happen.
Make sure you know what collection agencies were on your credit report prior to discharge. In checking your post discharge credit report, you should not see a new company there. Sometimes old debt gets sold, so they can dupe you into paying. Make sure you stop this as early as you see it.
Lower Impact On Credit
In general, a consumer proposal is not as harmful to your credit score as a bankruptcy is. A bankruptcy will stay on your credit report for six years, while a consumer proposal will drop off after three years. How will a consumer proposal affect your credit? That will depend on what else is on your credit report, but it will drag your score down significantly. Thats guaranteed.
Ultimately, whether bankruptcy or consumer proposal is better for you depends on your situation. Your needs are going to determine which is the right choice for you. Whether youre declaring bankruptcy or entering into a consumer proposal, it will be difficult. Its important to remember that there is light at the end of the tunnel and there are things you can do to ensure that light is as bright as it can be when it gets there.
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Apply For A Secured Credit Card
After a bankruptcy, it may be difficult to get approved for new loans or credit cards. But having open credit accounts helps you to rebuild your credit. So what do you do?
Secured credit cards are a great way to get started. You don’t need good credit to qualify for a secured credit card. Instead, you qualify by making a deposit that the creditor can keep if you stop making payments on the account. Here are a few key features to look for in a secured card:
- Reporting to credit bureaus: Make sure the card issuer will report your account information to all three major credit bureaus , giving you a better opportunity to build up all of your credit scores.
- Conversion option: Ideally your secured credit card will “convert” to unsecured after a set period of time. When it converts, you get your deposit back, as long as you’ve paid your balance. You can also keep using the card to help you continue building your credit history.
- Deposit amount: The larger the deposit on a secured card, the higher your credit limit. Having more credit availablethat you’re not usinghelps you improve your and build up your scores.
- Rates and fees: Fees and interest rates may be high compared with unsecured cards. Make sure you review the annual percentage rate , annual fee, maintenance fee and any other fees to choose the best secured card and keep your costs to a minimum.
Is Buying A House After Bankruptcy Possible
A bankruptcy proceeding can reduce or even eliminate your debts, but it will damage your credit report and in the process, which can affect your ability to obtain credit in the future for things such as new credit cards, a car loan, and a home mortgage.
It is possible to buy a house after bankruptcy, but it will take some patience and financial planning. It is important to check your credit report regularly to make sure everything is there that should beand nothing is there that shouldnt be. You can start to rebuild your credit using secured credit cards and installment loans, making sure all payments are made on time and in full each month.
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Bankruptcy Information Can Be Wrong
You may want to hire a credit repair attorney if your record shows inaccurate financial or bankruptcy information. They can speak with credit reporting agencies, credit card companies, or credit card issuers if you are having personal finance trouble. An attorney can also step in if a company does not discharge your debt correctly or you fall into a credit counseling scam.
Remember: A bankruptcy discharge legally stops creditors from harassing you. You have rights if a company is not following the process or respecting your bankruptcy filing.
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Emergency Funds And Savings
It is always essential to always be mindful of your finances. After bankruptcy, it is common to fall into a debt spiral. However, a little bit of savings can cushion that fall.
Avoid high-interest loans, and any emergency funds you gather in a savings account can help rebuild your credit after bankruptcy.
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Your Credit Score After Bankruptcy
Before you commit to bankruptcy, be sure that you have done all you can to climb out of your debt including: tough, tight budgeting taking a second job or doing freelance/gig work selling off assets consulting with a nonprofit debt counselor.
Been there and done that? OK. Brace yourself.
If you elect to file bankruptcy, the damage to your credit score depends on any number of considerations, some of which are nearly impossible to predict. This much is certain: Depending on which type of bankruptcy you file Chapter 7 or Chapter 13 youre likely to see your score plummet between 160 and 240 points.
Ironically, credit scores that were lower pre-bankruptcy tend to lose fewer points than credit scores that were significantly higher. An eight-year-old FICO study showed someone with a 680 credit score losing 150 points, and someone with a 780 losing 240 points. The plunge places both individuals in the same unattractive neighborhood of 530-540.
In short, consumers with better credit histories have more to lose those with lower credit scores already have many of their financial problems baked into their histories.
Rebuilding Your Credit After Declaring Bankruptcy Takes Time Set Goals Develop A Budget And Discipline Yourself To Pay Bills On Time And Youll Be On The Road To Success
Although there are different types of bankruptcy that allow you to either liquidate or repay your debt, bankruptcy should only be considered as a last resort. If you are unable to pay back significant debt youve accrued, there may be other ways to repay debt, and other avenues to explore such as debt consolidation and refinancing your home.
While creditors can no longer collect discharged debts after a bankruptcy settlement, the process will severely impact your overall credit score and can remain on your credit report for up to 10 years, says Keith D. Harrah, Manager of Credit Risk Management at Regions Bank. This can make it more difficult to rent an apartment, obtain an auto loan, or secure a line of credit.
However, if you find that filing for bankruptcy is your only option, there are steps that you can take to regain your financial footing and improve your credit over time.
Recognize that life is complicated
Evaluate your finances
Many individuals who file for bankruptcy are required to enroll in credit counseling to review finances and examine alternatives to bankruptcy, if there are any before filing for bankruptcy, Harrah says. Depending on the type of bankruptcy for which you file, you may also be required to participate in debtor education before debts are discharged.
Live within your means
Slowly and wisely rebuild credit
Content Type: Article
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About J Douglas Hoyes
Douglas Hoyes, BA, CA, CPA, CBV, CIRP is a Licensed Insolvency Trustee and the co-founder of Hoyes, Michalos & Associates Inc., one of Canada’s largest independent personal insolvency firms.
I am currently in a consumer proposal and was hoping to trade my truck in for a new vehicle in hopes of saving some $ in payments.
I see a lot of on-line lenders for bad credit. Is there any specific legitimate companies that lend to people in a consumer proposal?
I am almost finished paying off my consumer proposal . I am hoping to have it paid by November this year. I have a credit card that I use and pay off in full every month. I have a mortgage and pay all my bills on time and in full. I really need a new car by the end of the year. I have been reading some similar situations to mine. So perhaps a co-signer like a parent who has great credit will be the way to go? Or am I just wasting my time looking to finance a new car? Would a down payment make my chances a little greater at a good interest rate?
Hi John, you are correct about Affirm, although they have recently changed their policies so that now they are only giving unsecured cards to people who own a home, so they are not as flexible an option as they were in the past.
I Live In Canada How Can I Repair My Credit After My Bankruptcy
After your bankruptcy is completed, credit repair in Canada can be achieved most quickly if you follow this six step plan:
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How Credit Scores Are Calculated
- Payment history Payment history includes late payments and collection accounts.
- The amount of available credit youre using has a significant impact on your score.
- Age of credit history The average age of your credit accounts.
- New credit/inquiries The number of credit inquiries and newly opened loans and credit accounts.
- A mix of account types A good mix of credit account types
Evaluate Your Financial Habits
The first step? Take a good, hard look at why you had to file bankruptcy in the first place.
Though bankruptcy is sometimes unavoidable, we all have financial habits we could improve . Whether its forgoing shopping, purchasing health insurance, or building up an emergency fund, consider what you should do to avoid going bankrupt again.
And, if you havent already taken your debtor education course, look at it as a learning opportunity rather than just a legal obligation. By taking this course seriously, youll learn skills such as budgeting and using credit wisely that can help you avoid financial trouble in the future.
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Debt To Spending Ratio
In years past the most important thing you needed to remember about credit was paying it in full. The second most important thing to remember was to never pay the minimum. Minimum payments still cause interest payments. And if you get a new credit card that is a credit rebuilder, the interest could be 20%. We will talk about interest a little later.
Today, credit card companies review and judge the lifestyle rather than simply on-time bill payments. The way they do this is they look at whether or not you are living on the credit cards. You may be thinking, So what if I am? This sounds much like a value statement on their part but it still stands true as the way they will judge how you use the privilege of credit with their company.
The Best Credit Cards To Consider After Bankruptcy
Modified date: Jul. 20, 2021
Bankruptcy can destroy your credit but the effects wear off over time. Ive seen how stressful it can be, Ive seen friends going through this process. But Ive also seen how its possible to rebuild credit after bankruptcy.
If youve had to go through bankruptcy, you should look for ways to start rebuilding your credit to show creditors youve turned the corner and now exhibit good credit behavior. One way to do this is by opening a credit card.
Getting approved for credit cards after bankruptcy can be difficult, but it isnt impossible if you know which cards to apply for. Ive put together this list of the best credit cards after bankruptcy to help you start rebuilding your credit when youre ready.
Whats Ahead:
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How To Actively Rebuild Your Credit
Rebuilding your credit after bankruptcy is not as challenging as it seems, especially if you paid attention during your bankruptcy courses. The two courses that you need to take and receive a certificate for are mandatory which are the Credit Counseling and Debtor Education courses.
They will give you an idea about your personal finances and the debt you came to the bankruptcy with. At least you arent left totally to your own devices but there needs to be more knowledge gained for any real long-term success.
We suggest printing this half of the guide in order to reference the steps easier in the future. Grab a journal or digital document so notes can be taken about your personal situation regarding this information. We will split this section into two parts.
The first part covers what you need to do before you apply for more credit. The second part will cover how to apply for more credit and what types of credit you should have to rebuild credit again. And lastly, how to rebuild safely and not on a house of cards.