Filing for bankruptcy doesn't have to be the end of the world. As time passes, and if you take steps to rebuild, you can be creditworthy again, even enough to qualify for a mortgage. But repairing your credit isn't the only issue you face. Depending on the type of mortgage you're looking for, the law imposes certain waiting periods.
Credit Considerations
The first issue is lifting your credit score while you're waiting to be eligible for a mortgage post-bankruptcy. You may be stuck with the bankruptcy appearing on your credit report for up to 10 years, and even longer if you apply for a loan or mortgage of more than $150,000, but you can take steps during this time to raise your score anyway. You might take out one or two secured credit cards and religiously pay on them every month. If you kept your car in your bankruptcy and redeemed the loan against it, stay current with these payments as well. The good news is that if your credit score was shaky before you filed for bankruptcy, it probably didn't have far to fall when your bankruptcy was reported. The difference might not be as bad as you think.
Federally Insured Loans
Mortgage options exist for those with less-than-perfect credit. FHA-backed loans are usually the easiest to qualify for because they accept lower scores. You're not taking out the mortgage directly from the Federal Housing Authority. The FHA insures your loan; if you default and go into foreclosure, the FHA pays your lender the amount of your outstanding balance. The Department of Veterans Affairs also guarantees mortgages for armed forces veterans, service members, and surviving spouses. When you apply for a VA loan, the lender can ignore any bankruptcy discharges that are more than two years old.
The Waiting Periods
Federal law says you must wait at least two years after your Chapter 7 discharge if you want to apply for an FHA loan. If your bankruptcy came about because of an unanticipated hardship that caused your household income to drop by 20 percent or more, this can reduce the waiting period to one year. If you filed for Chapter 13, you don't have to wait for your discharge before you can get a mortgage. If your credit score is good enough, you can qualify after you've successfully made your Chapter 13 plan payments to the trustee for one year, but you must get approval from the bankruptcy court before you can take on a new debt. Loans that aren't guaranteed by the federal government have the longest waiting periods: four years after Chapter 7 and two years after Chapter 13.
Extra Efforts
In addition to repairing your credit while you're waiting to be able to qualify for a mortgage, you can take other steps. Even if your income didn't drop by 20 percent or more prior to your bankruptcy, you can still provide proof of whatever happened that led you to file, and this might affect a lender's decision. Both the FHA and the VA typically want some sort of explanation for your bankruptcy in any event, but smaller private banks and credit unions may take your explanation into account, particularly if your income is good. If you can save some money while you're waiting, putting down a larger down payment on a house can tip the odds of approval in your favor. Help is just a phone call away. Call us at 888-670-6791.
