One of the most common questions people ask us about the effects of filing for bankruptcy is whether, and when, they will qualify for a mortgage after filing. While it is certainly true that filing for bankruptcy can have a long-term effect on your credit, that does not mean that you cannot ever get a mortgage if you file. Contrary to what many people think, you can get a mortgage after filing for bankruptcy. The timing depends on which type of bankruptcy you file.
Chapter 7- Liquidation:
In Chapter 7 bankruptcy, you agree to have your non-exempt assets liquidated in exchange for a discharge of your debts. A Chapter 7 bankruptcy filing stays on your credit report for 10 years. However, this does not mean you cannot get a mortgage for 10 years, only that the bankruptcy is reported on your credit report for that time. In fact, getting a mortgage after filing bankruptcy can sometimes be easier because your credit score is no longer being impacted by substantial debts. In many cases, people are able to qualify for mortgages within a few years of filing for Chapter 7 Bankruptcy. Assuming they meet income and down payment requirements, people may qualify for conventional Freddie Mac/ Fannie Mae mortgages just four years after receiving their discharge in Chapter 7. For FHA or VA loans, the wait can be as little as two years.
Chapter 13- Adjustment of Debts:
Chapter 13 bankruptcy allows you to propose a payment plan to creditors based on your household income and what you can afford to pay over a three-to-five-year period. Assuming the court approves your plan, once you’ve complete the payments any remaining debts are discharged. A Chapter 13 bankruptcy stays on your credit report for seven years. Once you’ve completed your Chapter 13 plan, you’ll have a much better changes of getting a mortgage. This is particularly true if, during the course of your Chapter 13 Plan, you were making payments on other secured debts, like car loans or an existing mortgage. After receiving a discharge under Chapter 13, people may qualify for Freddie Mac/Fannie Mae Loans in as little as two years. For FHA and VA loans people can qualify in as little as one year after the bankruptcy payment plan begins, as long as the payments have been made on time.
Tips for Qualifying for a Mortgage After Bankruptcy:
- Accelerate the rebuilding process. After your bankruptcy is complete, you will have a fresh start and an opportunity to begin rebuilding your credit. One of the fastest and easiest ways to do this is by getting a “secured credit card”. Generally, obtaining secured credit card does not require a credit check, which makes them very appealing to people who’ve just completed a bankruptcy. Rather, secured credit cards require a deposit (usually as little as $500) which can be used to pay the balance if you don’t make the payments. Obtaining and using a secured credit card can accelerate the rebuilding process and help you to qualify for other types of credit and loans.
- Make on time payments. The best way to show potential lenders that you are a good credit risk is to show that you can pay your existing obligations on time. Once you’ve discharged the burdensome debt loan in bankruptcy, making regular payments on utilities, new credit cards and car loans will show lenders that your financial problems are all in your pre-bankruptcy past and not an ongoing problem.
- Make a budget- and stick to it. Before you consider applying for a mortgage after bankruptcy, determine how much you can afford to pay each month. Then, factor that payment into your monthly budget and save the difference. For example, if you are currently paying monthly rent of $2,000, but believe you can afford a $3,000 mortgage payment, save $1,000 each month in anticipation of the increase once you are approved. This will show potential lenders that you are able to make the payments you are applying for and will allow you to save up for a down payment. Typically, the larger a down payment you are able to make, the better your chances of qualifying for a mortgage will be.
Contact a Bankruptcy Attorney Today
If you have any more questions about bankruptcy or the affect it will have your ability to qualify for a mortgage in the future, contact the Lipton Law Group for a free initial consultation. Let us help you obtain a fresh start.