Your Guide to Getting A Home Loan After Bankruptcy
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Subprime Mortgages And A Past Bankruptcy
Carrie Reeder
Even with a Chapter 7 bankruptcy in your credit report you can still qualify for a sub-prime mortgage. Once approved, you can then use your mortgage to improve your credit history, qualifying you for lower interest rates in the future.
The Effects of a Bankruptcy
A bankruptcy will affect your credit score based on how long ago it was. So a bankruptcy discharged less than a year ago will qualify you for a D loan. These types of loans usually require 30% down and a high interest rate.
By waiting a year after a bankruptcy, you can qualify for a B or C loan with their lower rates and down payment requirements. If you wait two years, you can qualify for a FHA home loan. In four years, you can qualify for a conventional loan.
Besides your bankruptcy record, financing companies will want to see a steady payment history. This includes your credit and rent payments. Cash reserves for six to twelve months will also offset your credit risk.
Search For Lenders
Not all sub-prime lenders evaluate borrowers the same way. So you may qualify for a B loan with one lender and a C lender with another. To find who will offer you the best financing, you will need to request quotes from several lenders.
You can request quotes over the phone or online. Online sites will provide a fairly accurate quote based on the generic information you provide. You can also use free mortgage broker sites which provide home loan quotes from several different financing companies.
Before You Apply
Before you apply for your mortgage, make sure that all accounts involved in your bankruptcy have been closed. You can request a copy of your credit report from the reporting agencies to check your information. You may also consider including a letter in your report explaining the circumstances of your bankruptcy. Some lenders will look more favorably on your account if illness or job loss affected your finances.
After Your Mortgage
Once you have purchased your home, plan on rebuilding your credit history by making regular payments. Within two years you may qualify for a conventional mortgage with low rates.
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