WHEN CAN I GET A MORTGAGE AFTER I FILE BANKRUPTCY?
This is a question I am often asked when someone is considering bankruptcy. Most people already have a sense that if a mortgage is their goal, clearing up old debt will be a good step towards that goal. The short answer is that most lenders will consider you for a mortgage about 2 years after you have been discharged from your bankruptcy. Some alternative types of lenders (covered in my last blog post of September, 2016) may consider you even sooner.
This surprises many people who think it’s impossible, at least for a very long time. The good news is that there are options if you’re willing to do the work. The most important factor that a lender is going to look at is your credit score. Although your credit score will naturally come back by itself in most cases, there are steps you can take to speed up the process. I also cover some of these methods in prior blog posts, so take a look at those.
FACTORS LENDERS LOOK AT
Here are some key points that a lender will review when considering a mortgage request after bankruptcy.
1. How long since the bankruptcy has been discharged? This is typically the two-year period mentioned above.
2. What was the reason for your bankruptcy? A lender will want to understand if the bankruptcy was a result of poor money management or an event that was beyond your control. In my experience, most bankruptcies are beyond your control. They are due to unexpected and unwanted events such a medical situation, a sudden decrease in pay, having to take care of family, or loss of the income of someone who used to be part of your household. Fortunately, there is a growing trend to recognize things beyond your control. For example, under the new FICO 9 scoring method, medical bills do not have as great an impact on your credit.
3. How much of a down payment do you have? Generally, a lender is going to want you to have a minimum 10 per cent down payment. However, there is a growing trend where some mortgage lenders require even less than 10 per cent.
4. How does your credit report look now? There should not be any late payments or delinquencies on your credit AFTER being discharged from bankruptcy. This includes your cell phone bill, which reports on your credit.
5. Re-established credit You should also take steps to re-establish credit in other areas. I encourage you to look at other articles, or blog posts, under my website. There are some that give very important, and sometimes overlooked tips for re-establishing credit in general.
Though no one wants to get in financial trouble again, it’s a “must” to have a credit rating, so it might as well be good. Besides, life tends to throw things at us, unexpectedly, and having credit is sometimes a necessity to get by in an emergency situation.