After the Great Recession, many have been trying to pick up the pieces and move on with their lives, or just get back to where they were. Today we’ll talk about how to qualify for a mortgage after bankruptcy. How to manage your credit afterward, how to manage your finances, and when you can expect to be able to qualify for a mortgage.
Qualifying for a mortgage after bankruptcy isn't a forever wait. In fact, you can qualify for a mortgage as soon as 2 years after a bankruptcy.
If you’re one of the unfortunate many who have filed for bankruptcy(bk), the road back to credit health starts with which type of bankruptcy you filed. A Chapter 13 bk is easier to work with in that the payback plans helps re-establish credit history, but the 3-5 year payback plan takes your timeline out longer. A chapter 7 is over faster, but it can be more problematic especially if the borrower didn't reaffirm on any trade lines(or keep any accounts open) after their filing
- Re-Establish credit. Get your credit score above 640
- Do not miss any payments
- Pay your rent and other bills by check
- Check your score before your 2 year window opens.
- Clean up any outstanding inaccuracies
This can be easier said than done. Getting a secured credit card will help. A secured credit card is when you put a deposit down on a credit card to secure the amount of your credit limit. Capital One has a secured credit card program. Other department stores have on the spot approvals with low credit score requirements that can get you started. Their interest rates may be higher, but so long as you pay off your balance at month end, you should be safe. The goal is to have 3 trade lines, plus the payments for where you live reporting for at least 12 months before you apply.
Get your score above 640
FHA will approve most borrowers 2 years after a BK, but participating banks have established a market where the minimum credit score to qualify is 640.
Do not miss any payments
In order to qualify for a mortgage 2 years and 1 day after your BK, you must have re-established credit and can not have missed any payments since the discharge. So, from the time of your discharge, you must be squeaky clean!
Pay your rent and other bills by check
Do you best to pay any monthly obligations by check and not by cash. For borrower’s who are borderline, being able to produce cancelled checks to show payment history can be the deciding factor for approval or denial of your mortgage application. If you’ve always paid by cash, there is no objective proof the payments were actually made.
Check your credit score before your 2 year window opens.
If you want to qualify for a mortgage as soon as you can after a bankruptcy, then the time to pull your credit is not at 2 years. You should pull your credit 6 months after your bankruptcy to make sure all of the trade lines that were discharged in BK report that way and not as collections and any new trade lines you have re-established are now reporting correctly in your favor.
Clean up any outstanding inaccuracies
In many cases after a BK, accounts that were supposed to be reporting as discharged, don’t report correctly, many times they report as collections or write offs. If you pull your credit early enough, you have plenty of time to correct them. The longer you wait to correct in-accuracies, the harder it is due to lack of documentation and support for the new action.
To conclude, it is possible to qualify for a mortgage as soon as 2 years after a bankruptcy will a good amount of discipline, planning and effort.