Getting a mortgage after bankruptcy is not an impossible task. You can get a mortgage with bankruptcy still on your credit report (remember, bankruptcy remains on your credit report for up to 10 years). However, the terms of your mortgage in bankruptcy scenarios would be really harsh… and you should expect them to be harsh since you have lost your credit worthiness to bankruptcy. Also, you would have to wait for some time (typically, a minimum of 2 years) before you can apply for and expect an approval on your mortgage after bankruptcy discharge.
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But what are the factors that affect your chances of getting a mortgage after bankruptcy?
Firstly, the lenders will check how you have been doing on your bills and other payments (including the loans that were not discharged in bankruptcy) during the period of 2 years (or whatever) after bankruptcy discharge. If you have been making all timely payments, it would also reflect in your credit report and lenders would be ready to consider giving you a mortgage loan.
Secondly, the lenders would want to know how much down payment you are able to make towards your home purchase. Your chances will improve with a higher percentage of down payment that you are ready to make. In fact, you would be expected to anyways make a higher down payment as compared to others who have a better credit history.
Another very important parameter would be your debt-to-income ratio. If your income has fallen or if your debt has increased, your chances of getting a mortgage after bankruptcy would come down. So, do not build more debt after bankruptcy (in any case, you will find it difficult to borrow money post your bankruptcy).
Besides this, the lenders will anyways make the usual checks that they would with any mortgage seeker.
What kind of terms to expect if you get a mortgage after bankruptcy?
Well, you can expect much higher interest rates than what are being offered to the other borrowers who have a better credit history. Similarly, you can expect a lower-than-usual mortgage amount to be approved by the lenders and a much higher down payment requirement from you… all this, besides prepayment penalties and unfavorable mortgage terms.
What can you do to improve the situation and your chances of getting a mortgage loan after bankruptcy?
As mentioned previously, the most important thing is to ensure that your monthly payments are made in time and in full… this will include your bills and debt payments. If you got a secured credit card or an installment loan after bankruptcy, you should make the full use of them in order to improve your credit history by sticking to financial discipline and making all timely payments.
You must also ensure that your credit reports are correct in all respects and do not contain any incorrect entries or items that do not belong to you. If you find any mistakes in your credit report, you should immediately inform the three credit bureaus (Equifax, Experian, and TransUnion) and the creditors about the wrong information and get it corrected immediately.
You should also do a proper financial planning and ensure that all your long term, medium term and short term financial goals/expenses are part of this plan. With such a plan, you will be able to balance your home budget and ensure that you don’t overshoot your budget while trying to meet your financial goals.
Further, you can look for jobs that pay you better than what you get today… or just see if you can get an additional source of income through extra-work etc.
However, as we all know, prevention is better than cure… so, the best thing is to impose financial discipline/planning and avoid bankruptcy.
Having bills such as a phone contract and paying this in full every month can also help improve your credit rating after bankruptcy.