If you’ve filed for bankruptcy, if you are making payments to your Chapter 13 bankruptcy, or your bankruptcy has been discharged, you may be wondering what it means for your ability to get a home mortgage. Fortunately, it’s still very possible to get a mortgage after bankruptcy with the right preparation and knowledge. Knowing what to expect and how to prepare can help you make sound decisions during the mortgage process. In this article, I will explain the steps you need to take in order to get a home mortgage after bankruptcy. We’ll discuss everything from improving your credit score to getting pre-approved and finding the right lender. With the right preparation and guidance, you can be well on your way to getting a home mortgage after bankruptcy, possibly during your bankruptcy!
When you file for bankruptcy, your ability to get a mortgage is greatly limited. Bankruptcy is specifically designed to allow a debtor to reorganize and get back on their feet financially. It’s intended to be a temporary fix, not a permanent solution. Like any legal process, bankruptcy’s main goal is to allow you to get your financial house in order and put your financial life back in order. Making the effort to get a mortgage after bankruptcy is a great way to get back on track. After bankruptcy, your credit is seen as “damaged” by mortgage lenders, mortgage guidelines, and Underwriters. Credit scores and credit history are used by lenders to determine your ability to be approved, your interest rate and mortgage products. An overly low credit score can lead to higher interest rates, higher monthly payments, and possibly not being able to be approved for a mortgage. Before you begin the mortgage process, you should look at and analyze your credit score and credit make up. Lenders are going to be looking to see if you have re-established credit, really, lenders will want to see that you have current trade lines with some history of repayment. Lenders will want to see how you are handling that credit after your bankruptcy, keeping your balances low, and ensuring no accounts are reporting late payments.
Every mortgage program has their own guidelines and rules for how long you have to wait before you can be pre-approved for a mortgage. Why do you have to wait? When I was a mortgage underwriter I was told that we don’t care that a borrower had to have a bankruptcy to improve their financial situation, we care about whether they learned from having to have that bankruptcy. Time allows for Underwriters to make that decision as to how you are and will handle your credit.
How long you have to wait will depend on what bankruptcy you have used or you are currently in, Chapter 7 or Chapter 13 bankruptcy.
For a Chapter 7 bankruptcy you will have to wait from 2 to 4 years from the DISCHARGE DATE depending on the mortgage program, FHA and VA mortgages requires a 2 year wait, the USDA mortgage programs requires a 3 year wait, and for the most part both Conventional mortgage programs require a 4 year wait.
Of the two Conventional mortgage programs Freddie Mac is a bit more lenient. If your bankruptcy is reflected on your credit report and we get an automated underwriting approval then there is no waiting period.
For a Chapter 13 Bankruptcy, it gets very interesting. You will need to wait 12 months from your FILING DATE for FHA, VA, and USDA as long as you have made your last 12 bankruptcy payments in full and on time. Making it possible to get a mortgage approval while you are still paying on your Chapter 13 bankruptcy.
Also, we will need to get permission from the Court to allow you to get a new home and mortgage. With a Conventional mortgage, it is a 2 year wait from the discharge date or 4 years from the dismissal date.
Once you have examined your credit scores, you want your scores to be in the 600 credit score range especially if you are considering FHA or VA. If you want to consider USDA or Conventional you will want your scores to be nearer to 640. The credit scores you will need will depend on the lender and their overlays to the guidelines and the mortgage program. Once you are sure you have re-established your credit and there are no late payments on this credit, and you have cleaned up any mistakes on your credit report, you are ready to get pre-approved for a mortgage. Pre-approvals can be beneficial for a number of reasons. It gives you an idea of your likely mortgage payment, which is helpful for budgeting. Being pre-approved will allow you to know how much of a sales price you should be considering. Being pre-approved will simply provide you with peace of mind. It also lets your real estate agent and the seller know that you’re likely able to get financing, which can help speed up the home buying process. Pre-approval gives you an advantage over other borrowers.
Now that you know what to expect and what documents to assemble, it’s time to figure out what your monthly mortgage payment will be. This is a critical part of the mortgage process and will have a big impact on your loan terms and amount. Your monthly payment is based on a number of factors, including the amount of your loan amount, loan interest rate, and loan term. To figure out your loan payment, you’ll need to consider all these factors and make a realistic estimate. The good news is there are a number of ways to estimate your payments. You can use a mortgage calculator, discuss it with a lender, or simply make an educated guess. It’s important to use a realistic method and not over-inflate your payment estimate.
Know your budget and have a total house payment in mind that works within your budget. Know what that maximum house payment is that you will not go a dollar over, this will help you and your loan officer establish the maximum sales price that you can be approved for and still not be house poor.
In some cases, lenders may require you to obtain mortgage insurance. This insurance protects the lender in case the borrower doesn’t repay the loan. It comes with a cost, which is included in your monthly payment amount. Although it may be required by your lender, you should still carefully consider this additional cost before choosing to obtain mortgage insurance. Mortgage insurance is designed to protect lenders in the event of a loan default. A loan without this insurance would result in a lower monthly payment amount. However, it’s important to note that the insurance is only payable if you’re late on your payments.
Finding the right lender is crucial in the process of getting a mortgage after bankruptcy. There are a number of factors to consider when choosing your lender, including their mortgage knowledge and experience, ease of loan application process, can they do manual underwriting, and do they have any guideline overlays. Make sure to look around and ask a lot of questions. You may be able to find better options and interest rates as you look for the right mortgage lender. Once you’ve found a lender that you’re comfortable working with, make sure to clearly communicate your needs. Know what you’re looking for, including how much you’re willing to borrow, how much you’re able to put down, and what type of loan you’d like to use. If you’re unable to fully explain your needs, a lender may push you towards a loan that isn’t a good fit. A home buyer that does their HOME WORK will be appreciated by the mortgage loan officer they work with.
Before and after the mortgage pre-approval you will be asked for your filed bankruptcy documents, all pages. If your bankruptcy has been discharged you will be required to provide the Discharge Letter provided from the court.
If you are in the midst of paying your Chapter 13 you will be asked to get a letter from the Trustee involved for permission for you to purchase a new home. Also, you will be asked to document that you have made the most recent 12 or more payments to the court on time. These documents and then the standard documents for a mortgage pre-approval application, that will include paycheck stubs, W2 or 1099 forms, bank statements, and possibly tax returns. Your loan officer will know what they want and need.
When you’ve finished the mortgage process and have your loan documents in order, it’s time to find a new home. This is a crucial step in the process and can have a big impact on your next new home. Hiring a real estate agent to be your buyer’s agent will allow you to shop around and compare homes. You can also use their expertise and contacts to help you find the perfect new home. Hiring a real estate agent can be beneficial for a number of reasons. They can help you navigate the home buying process, make comparisons between houses, and help you find the perfect home on your budget. They can also help you negotiate on prices, concessions, and get the best deal possible.
Congratulations! You’ve completed the mortgage pre-approval process and are ready to find your new home. As you finalize the purchase, make sure to include all these steps in your mortgage closing checklist. - Get a home inspection. The home inspection is helpful for identifying potential problems with the home, and save you from making costly decisions. - Get your home insurance policy in place. Make sure to have your homeowners insurance in place before closing on your new home. Get quotes as home owner’s insurance can vary a lot between insurers. Start with the insurer that has your car insurance as they will offer a multi-policy discount. Once you have found the best quote, put it into place. Get your mortgage documents to your mortgage lender as soon as possible. The more you are ready the faster you can close on your next new home.
You have gone through or you are currently in a bankruptcy? Are you looking to purchase a new home? Don't let bankruptcy stand in the way of realizing your dream of home ownership. With the right guidance, you should be able to get a mortgage after or during bankruptcy. I specialize in helping home buyers who are in Chapter 13 or have had a bankruptcy discharged get a mortgage sooner. I can help you can get the home of your dreams without having to wait years after bankruptcy. Take the first step today and contact me to find out how you can get a mortgage after or during bankruptcy. I will guide you every step of the way towards a new home and a brighter financial future.
If you want to make an appointment to talk here is a link to my calendar where you can schedule a convenient time to talk, https://calendly.com/bobrutledge. If you would like to learn more follow this link to my website to learn a lot more, https://www.bobrutledge.com/mortgage-after-bankruptcy
You Are Not Alone
I recall the feelings that ran through me when I felt compelled to file for a Chapter 7 bankruptcy, I felt as though I was an outcast and ashamed that I could not handle my obligations. For a very long time I barely admitted it to myself much less my friends. Now I realize that I did not have a solid handle on my finances and it took a couple small set backs to put me into the position of bankruptcy. But, when I look back I see a life lesson that was provided to me and has been instilled well into the fabric of my personal life. I will not allow this to happen ever again. It is this exact lesson that Underwriters and Mortgage Lenders are looking for from borrowers when it comes to providing a mortgage approval for a home buyer after a bankruptcy.As a Mortgage Lender I am in a very unique position to provide both experience and knowledge in help my clients when they come to me for help in the purchase of a new home or the refinance of thier current house after a bankruptcy.
TIME AND PROOF
For the sake of brevity I will not get into all the exact rules for every mortgage program, I do at my website, please visit AFTER BANKRUPTCY here I provide what you need to get you approved.Every mortgage program has specific time periods that you must wait after the discharge of your bankruptcy before you get started. Though most of the programs have exceptions to those wait guidelines, for instance the wait period for FHA is normally 2 years, but there is an exception called Back to Work that allows for only a 12 month wait period.
Something that many Lenders fail on is that after a Chapter 13 bankruptcy has been discharged it is possible to be approved for a FHA mortgage after only 12 months! BUT! You can actually get approved for a FHA mortgage while you are still in the repayment period of your Chapter 13! If you have made at least 12 months of on time payments and if your Trustee agrees you are eligible for a FHA mortgage!
The Underwriters will be looking for validation that you have learned from your bankruptcy. They will want to see that if you have current credit accounts that you are making your payments on time. This is important, to re-establish credit after your bankruptcy and especially with a credit card or two.
COMPENSATING FACTORS
Applying for and getting approved a mortgage application after a Chapter 7 or Chapter 13 bankruptcy requires a stronger than normal application. To strengthen your application requires COMPENSATING FACTORS. Click on the link for a long list of items that you probably already can bring to your application, here are a couple that are important.....
Housing payment shock, you should not have a large increase in what you are paying currently for housing compared to your new house payment.
12 months of on time housing payment, this is an absolute must. There are exceptions if you are living somewhere rent free.
Keep your total debt to income ratio at or below the recommended guidelines of the mortgage program.
YOUR BANKRUPTCY FIXED A PROBLEM
When I was an Underwriter we were told that a bankruptcy should be seen as the borrower recognizing that they had a problem with thier current financial situation and the method of solving that problem was bankruptcy. Now, let's see that the borrower has learned from that life lesson and they are practicing what they learned.
It takes a mortgage lender that adhers to the guidelines of the mortgage programs and don't have overlays that create roadblocks to your approval. It takes a mortgage loan officer that is willing and able to take on your special situation, don't settle!
If you have questions please feel free to visit my website, www.bobrutledge.com or contact me.