Qualifying for a mortgage or loan post-bankruptcy

February 09, 2013

Qualifying for a mortgage or loan post-bankruptcy

Article provided by Thomas G. Waldstein, Attorney at Law
Visit us at http://www.thomaswaldsteinlaw.com

With the financial difficulties in recent years, more Americans than ever have been through a bankruptcy. Once the bankruptcy discharge has been received, many people are unsure of how to begin the return to financial health.

This uncertainty is understandable. When you file for bankruptcy, it remains on your credit report for up to 10 years, which can cause your credit score to be low. Since lenders rely on your credit score to determine your creditworthiness for loans and mortgages, a low score can make you ineligible for the best rates (or disqualify you altogether) immediately after the bankruptcy. However, if certain steps are taken, it is possible to rebuild your credit score and improve your chances of qualifying for a loan or mortgage soon after you receive the discharge.

Verify your credit report

Since your credit score is derived from your credit report, you want to make certain that your report is accurate. You can access one free credit report from the three major credit reporting bureaus per year at AnnualCreditReport.com. Review your credit report to make sure that there are no errors. It is important to report any errors to the corresponding creditor who can correct it.

Pay your bills

Doing something as simple as making sure that you pay your bills on time can boost your credit score by 35 percent. In addition, when applying for a loan or mortgage, lenders typically will want to see at least 12 months of consistent payment of your rent and utilities, so consistent payment can go a long way in improving your qualification chances.

Save for your future

To qualify for a loan or mortgage, lenders often want a down payment and to see a pattern of savings from you. This can be accomplished by opening a checking and savings account and consistently putting away at least 10 percent of your pay from each paycheck. In addition, a bank account also will furnish monthly statements that lenders will typically want to see before approving a mortgage or loan.

Consider getting a credit card

As your credit score will improve if you can show that you can use credit wisely, having a credit card and paying off the balance in full each month can be a good tactic to boost your score. Be sure to get a credit card that reports your payment history to the credit reporting bureaus, as not all credit cards do this.

Consult an attorney

Depending on whether you filed for chapter 7 or chapter 13 bankruptcy, you may be eligible for a FHA or VA mortgage in as little as one year and conventional financing in as little as two years. Of course, this assumes that you take steps to save money and repair your credit sufficiently to qualify for the loan.

If you are considering filing for bankruptcy, it may seem like you'll never qualify for credit again, but this is simply not true in the majority of cases. An experienced bankruptcy attorney can explain the bankruptcy process to you, advise you on how it will affect your financial situation and recommend the right debt-relief option for your individual circumstances.