Getting a Mortgage after Bankruptcy
May 22, 2011In times of overwhelming financial distress, many feel they have no choice but to wipe the slate clean and start anew. If your credit is recovering from a bankruptcy, you may feel that you have no chance at home ownership; however, there are a few ways you can ascend from your financial woes and enhance your ability to secure a mortgage.
Shore Up Credit Report Errors
Though a bankruptcy will hit your credit report hard, you can offset some of the damage by ensuring that no false negatives exist along with it. Contact Equifax, Experian, and TransUnion to get a hold of your credit report. Ensure that all of the information is accurate and eliminate derogatory items charged off in your bankruptcy.
Maintain a Strong, Well-documented Rental History
Most likely, your rent represents your largest monthly expense. Underwriters look hard at your rental payment history, and you need to be able to document that you have consistently been able to meet each payment on time for a relatively long period. Cancelled checks or Verification of Rent from apartment complexes will do the job. Cash payments are poor choices, because they’re difficult to document and may be perceived as signs of further financial instability.
Avoid Fresh Debt
Whether you’ve declared bankruptcy or not, your debt-to-income ratio will be a significant determining factor in whether or not you’re approved by a lender. The better this ratio, the better your chances. Don’t get a new car loan unless you absolutely need it. Though the bankruptcy may have erased a lot of your stress and bills, resist the temptation to make new purchases, or you’ll have little chance at securing a home loan.
Wait and Save
Let’s face it: if you’ve declared bankruptcy, you’ll be required to post a strong down payment. Most of the time, advisors recommend that consumers wait at least two years before attempting to secure a post-bankruptcy mortgage. If you’ve got the money to pay closing costs and 15 percent of the down payment, you could get one earlier; however, it may be difficult explaining the source of this money to a bankruptcy judge. In most cases, the longer you wait, the more time you’ll have to save money and rack up a strong history of good financial behavior that will bolster your case with lenders.
