Getting a mortgage after bankruptcy is difficult. However, if you control your finances and improve your credit history, there are chances that you can get a home loan if you are selective about applying for it. Lawyers of Los Angeles law firm (https://www.recoverylawgroup.com/bankruptcy/) say, that it might be sooner than later.
Affect of bankruptcy on your credit score
Once you opt for bankruptcy, you should know that it stays on your credit report for 10 years; sometimes even longer if the loan was for more than $150,000. Your credit score is affected by this as well as your credit history prior to the bankruptcy filing. In case your previous credit history was good, and you had a high FICO score, bankruptcy will hit your credit score badly. However, if your credit history were poor prior to the bankruptcy, the impact would not be much. If you can get rid of most of your debts through bankruptcy, you might be able to improve the credit faster.
Getting a mortgage after bankruptcy is easy
To get a mortgage after bankruptcy, you can use the following methods:
- Take steps to rebuild credit –To do this, you need to make payments on time, have a good debt-to-income ratio, and use your credit in a responsible way. You should take control of your finances, ensure that all payments are made on time, and get a secured credit card to rebuild positive credit history.
- Consult the Federal Housing Authority (FHA) – FHA backed loans are available for people with poor credit history and bankruptcy. Though these loans are given by traditional lenders but are backed by the government. FHA insures home loans after 1 year of payments in Chapter 13 and 2 years after chapter 7 discharge. To avail of this opportunity, you need to provide documentation supporting your bankruptcy (job loss, medical bills, etc.) while applying for your loan application.
- Consult credit unions or local bank loans – Sometimes traditional underwriting can help. Thus, providing the complete financial picture apart from your credit score apart from the improved financial situation and a good income can improve your chances of obtaining a loan.
- Get a consignor –If someone is willing to co-sign on your loan, it will be easy to get a loan. However, if you choose to opt for this, make sure that you make payments on time. if you fail to do so, the consignor will be held responsible.
- Have a large down payment – Since a mortgage is a secure loan, the banks can take your house if you fail to make payments. If you have more equity in the house, the bank is less likely to deny your loan application as the risk is relatively less in that case.
- Do not reapply for a mortgage – If your application for a mortgage is being rejected constantly, do not reapply frequently as it can hurt your credit. Unless you have a good chance of getting a mortgage, do not apply again. If your application is rejected, wait for 6 months before reapplying.
- Avoid subprime loans – Though a subprime lender can offer you mortgage despite having bad credit, there are generally hidden fees, high-interest rates, balloon payments, and other ridiculous terms involved. This will throw you back onto the path of bankruptcy.