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Guide to Getting a Mortgage Loan after Bankruptcy Discharge


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TERMINOLOGY

If you have a bankruptcy discharge like many Americans do today, getting a home loan is closer than you may think. Most borrowers can get a mortgage two years after their discharge. In order to achieve this, you must start immediately rebuilding your credit and preparing your finances to apply for a mortgage. Even with the bankruptcy on your credit report for ten years, if you can show two years of good credit history, you will likely be eligible for a new mortgage.

Get a Secured Credit Card

The best way to show credit worthiness is to get a credit card, and only utilize a small percentage of the limit and pay on time every month. It can be hard to get a credit card immediately after a bankruptcy, so you will need to apply for a secured card. A secured credit card will require a deposit into a savings account held by the card issuer. The amount you deposit into the account will be the credit limit on the card. This typically between two and five hundred dollars. This may not seem like much, but it doesn't matter how high your limit is, only how much of the limit you charge. You should make small purchases on the new card and pay them off every month, never charging more than 30 percent of the limit and never going over the limit. By doing this every month, after 6-12 months you will likely be eligible for a conventional card.

Pay Down Other Debts

If you had debts that were not discharged in bankruptcy, like student loans, pay them down. This helps your score tremendously. Always pay them on time and pay extra whenever possible. In order to qualify for a mortgage, you will need a low debt-to-income ratio. So the less debt you have, the better chance you have in securing a home loan.

Save for a Down Payment

With less than perfect credit, you really need to compensate with a larger down payment. This shows the lender that you are responsible enough with your finances in order to save the money, and it reduces the risk to the lender since your loan amount is lower.

Apply for an FHA Loan

The Federal Housing Administration offers loans two years after a bankruptcy. The minimum score needed is a 620, but it can be lower than that if you put more money down. The FHA only requires 3.5 percent as a down payment as long as your score is 620 or higher. They have very competitive rates and offer a good mortgage program to those with past credit problems. If you are planning on applying for an FHA loan, keep steady employment for the two years before applying and resist switching jobs if not necessary.