If you have filed bankruptcy, you probably dream of owning your own home again. The good news is that although it isn’t as easy as it once was, getting a mortgage after bankruptcy can be done.
You will have to wait a set amount of time after your bankruptcy. If you filed Chapter 7, you will need to wait at least 24 months from your discharge. If you filed Chapter 13, you will need to wait at least 12 months from your discharge. During this time, it is critical that you work on after bankruptcy credit repair.
You should use this time to reestablish good new credit. Just be careful to manage it properly! It is a good idea to begin cleaning up your credit report as soon as possible after your bankruptcy. This will eliminated any issues that may result due to accounts not being properly updated as having been included in your bankruptcy. A good first step can be to get an after bankruptcy credit card.
When the time comes to apply for a mortgage, the lender will look at numerous factors. Of course, your credit history is critical. Lenders will also look at your employment information, debt to income ration and down payment.
In order to qualify for a mortgage loan after bankruptcy (or any other time for that matter), you will need a credit score of at least 620. This changes quite often, but as of right now that is an accurate number. You will need to have had clean credit for at least the last year. It is especially important that you not have any late payments or collection accounts after your bankruptcy. This can disqualify you very quickly!
Another important factor is whether you had any judgments or liens that survived your bankruptcy. An example of this would be tax liens. Because they can be attached onto the property you purchase, this would also be a major factor in your ability to qualify for a mortgage.
Your employment information can go a long way to helping you qualify for after bankruptcy mortgages. Good job time is key. If you have changed jobs in the last two years, ideally you want it to be in the same field and due to career advancement. Job hopping is viewed as a sign of financial instability, and can be especially troubling to an underwriter following a bankruptcy.
Your debt to income ratio is another key factor in your loan approval. This is a look at how much money you have going out every month, versus your income. Generally speaking, your housing costs should be no more than 28% of your gross (before tax) income. In addition to your salary, underwriters will consider retirement income, VA or Social Security benefits, disability, welfare, alimony and child support. If you have a history of receiving overtime that can be well documented, and your employer can confirm that overtime is likely to continue, this may also be counted as your income. Also, a second job may be counted, provided you have been working for a given period of time. (Typically at least a year, although some lenders require two years)
In addition to looking at your housing expenses, lenders will look at your overall debt level. Your total debt, including the new proposed housing payment, should not be more than 36% of your gross income.
People often overlook the impact that your down payment will have on getting mortgage loans after bankruptcy. While a down payment will no longer overrule basic loan qualifications, it can help significantly if you are in a grey area and need an exception.
When you apply for home loans after bankruptcy, you will need to provide information to your lender in addition to the normal required documentation. The lender will want to see your discharge paperwork. Additionally, you will need to include a letter of explanation that tells the lender why the bankruptcy happened and why a situation like that is unlikely to occur in the future. Getting a bad credit home mortgage loan isn’t always easy, but it can be done!
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