Bankruptcy does not have to be a death sentence to your future house purchasing abilities. If you had the misfortune of filing for bankruptcy, but can show that you can turn your life around, you can be a homeowner again in as little as 12 months. Gone are the days of waiting 7 or more years to get approved for a mortgage; today, lenders are much more willing to provide a mortgage to borrowers with a bankruptcy in their history as long as they can provide the answers they need. Following is a sample of what lenders need to see to approve you for a mortgage just 2 years after a BK.
Increase Credit Score
Your credit score is a driving factor to your approval. It is quite obvious that it dropped when you filed for BK, but it does not have to remain that way for long. Right after your bankruptcy is discharged you can start turning your credit around.
Start by consulting with each of the credit bureaus to make sure that the accounts included in your BK are reporting correctly on your credit report. Sometimes errors occur and the accounts still show as outstanding, which can hurt your score in the long run. Once you know that every included account is reporting correctly, you can start repairing your credit.
Repairing your credit after a BK means building it back up; little by little, you can start applying for new credit. The best place to start is with a secured credit card. This type of credit means your credit line is equal to the amount of collateral you put down. The money you put down is held in a savings type account and used in the event that you are unable to make your payments. Once you have a few months to a year of timely payments with a secured credit card, you can start applying for other types of credit to show that you can responsibility manage your finances. Just make sure that any credit that you take out, you can pay off, leaving your outstanding debt no higher than 30 percent of your available credit for the maximum assistance in increasing your credit score.
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Increase your Savings
Your savings account speaks volumes when it comes to qualifying for a mortgage after bankruptcy. The more money you have saved, the less risk you pose to the lender. Your savings can be used in one of two ways:
- Put down a large down payment on the home – The down payment helps to minimize your LTV which means a lower risk to the bank. The higher your down payment, the higher your likelihood of approval.
- Have reserves on hand – Reserves are a crucial component to a mortgage approval for any borrower. Reserves mean that you have liquid assets available to pay your mortgage should the unexpected happen to your income.
Last but not least, you need patience after a bankruptcy. There are mortgage programs out there for you, including the Back to Work Program provided by the FHA, which only requires a 12-month waiting period after your bankruptcy discharge. Other programs require 2 or more years, but this is still an improvement over the typical 7 to 10 year waiting period everyone used to have to undergo before obtaining a mortgage. Your patience will pay off in the end as it is the only way to get the approval you need – by doing what the lender needs to see to prove that you are no longer a risk.
If you filed for bankruptcy, make sure that it is discharged and then you can start the process. It is best to start by straightening out your credit and getting your liquid reserves in order. You can decide what is best – whether you put the money you saved down on the home or you use it for reserves – both types serve as compensating factors for a mortgage after bankruptcy.