Re-Establishing Credit After Bankruptcy For Mortgage

Potential homebuyers should start re-establishing credit after bankruptcy to qualify for a mortgage as soon as possible after the Chapter 7 bankruptcy discharge date. Homebuyers on the Chapter 13 Bankruptcy repayment plan should start re-building credit as soon as they file Chapter 13 bankruptcy.

Those who filed for Chapter 13 Bankruptcy need to religiously make their monthly debt payments timely to their list of creditors. Besides making timely monthly payments to their creditors, they should have several secured credit cards and installment credit builder accounts. In the following paragraphs, we will discuss and cover re-establishing credit after bankruptcy to qualify for a mortgage.

Late Payments During and After Bankruptcy

Most lenders WILL NOT accept any borrowers who had one late payment after the following:

• Chapter 7 Bankruptcy discharge
• During Chapter 13 Repayment Period
• After foreclosure
• After deed in lieu of foreclosure
• After a short sale

Can I Qualify For Mortgage After Bankruptcy?

One or two late payments after bankruptcy are not always a deal killer. Mortgage lenders normally classify borrowers with late payments after bankruptcy and foreclosure as second offenders. Most lenders will steer away from them. This holds true even though they get automated approval via the Automated Underwriting System. Late Payments after bankruptcy are not under HUD, VA, Fannie Mae, Freddie Mac, or USDA Guidelines. Many times the Automated Underwriting System will deny a borrower if the system recognizes late payments after bankruptcy and foreclosure. This includes short sale and deed in lieu of foreclosure. In this article, we will discuss and cover re-establishing credit after bankruptcy to qualify for a mortgage.

Click here to check if you qualify for a mortgage after bankruptcy.

Re-Establishing Credit With Debts Excluded From Bankruptcy

That depends on what someone does after filing for bankruptcy. Petitioners decide to exempt car and mortgage loans when filing bankruptcy. Filing Chapter 7 Bankruptcy can plummet credit scores by more than 100 points. However, if timely payments on debts that are not discharged are made, credit scores will gradually go back up. It is a form of re-establishing credit after bankruptcy to qualify for a mortgage.

What Is The Fastest Way Re-Establishing Credit After Bankruptcy For Mortgage

The easiest and fastest way of re-establishing credit after bankruptcy to qualify for a mortgage is to obtain three to five secured credit cards. For a maximum score, increase potential and make sure they are at least a $500 to $1,000 credit limit. Secured credit cards under $500 credit limits will do minimum impact in improving credit scores.

There is a borrower that comes to mind who got a 0% car loan after one year of filing Chapter 7 Bankruptcy. Had credit scores of over 700 FICO. This was because he was diligent in re-establishing credit right after the discharge date of his chapter 7. There are three different credit reporting agencies. Each of the three agencies has different models for calculating credit scores. One credit bureau may have a different credit score than the other two.

What Happens If You Don’t Re-Establishing Credit After Chapter Bankruptcy

Many consumers who file Chapter 7 Bankruptcy do not want anything to do with credit and buy everything in cash. They believe that credit got them in trouble and do not want to do anything with credit. Unfortunately, by not obtaining new credit and having no credit reporting on their credit report, it ends up hurting them and their credit scores remain low. I highly recommend that consumers who got a bankruptcy discharge get a few secured credit cards. This holds true even though they do not use them. I do realize that it cost an annual maintenance fee plus that fee is worth its weight in gold.

Using Secured Credit Cards To Re-Establishing Credit After Bankruptcy For Mortgage

Each secured credit card can boost a consumer’s credit score by at least 20 to 50 points. After 3 secured credit cards, the improvement of credit scores greatly reduces. Also, the consumer credit profiles will strengthen as it ages. I run into many borrowers who have filed for bankruptcy years ago but still have credit scores of under 580 FICO and have never had a collection account or charge-off account. They also have a perfect payment history with not a single late payment. However, their credit remains low because of no re-established credit after Chapter 7 Bankruptcy. Click here to qualify for a mortgage after bankruptcy

Purchasing A Vehicle While In Chapter 13 Bankruptcy

Filers of Chapter 13 Bankruptcy are eligible for an automobile purchase during their Chapter 13 Bankruptcy. Need to provide Chapter 13 Bankruptcy Trustee the type of vehicle they are buying, the terms and interest rates on the proposed automobile loan, the purchase price, the down payment, and other factors involved with the car purchase. This is so the Trustee can file a motion on behalf of the consumer that they are going to incur the auto debt with the U.S. Bankruptcy Courts.

Getting Bankruptcy Trustee Approval For Home Purchase

If you are buying a high-ticket purchase such as a home purchase or auto purchase, you need the approval of the bankruptcy trustee. The courts will do a full review of the request. They will analyze the documents provided and then render a decision. Most of the time, the courts will approve an auto loan request.

This holds true unless it is a luxury or exotic automobile. Automobiles are a necessity for people to commute to work and do other domestic tasks such as shopping, driving children from and to school, etc. If you pay off a vehicle while in a Chapter 13 Bankruptcy, the automobile lender needs to send you the title to the vehicle to you and the vehicle is completely yours.

Purchasing A Vehicle While In Chapter 7 Bankruptcy Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

For consumers in a Chapter 7 Bankruptcy, it is best recommended that they wait until their it has been discharged which is normally 90 days from the filing date, and then purchase a new car and obtain a car loan. There are many car finance companies that will finance car buyers just out of a Chapter 7 Bankruptcy but your interest rates will be high.

The best recommendation I can give consumers is to try to re-establish credit and wait for credit to the season for at least six months. Then buy and finance a new car. If you need a car sooner, the auto lender may require buyers to have a co-signer.

Qualifying And Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

Homebuyers can qualify for a mortgage after both Chapter 7 and Chapter 13 Bankruptcy. Here are the qualification requirements to qualify for a mortgage after Chapter 7 Bankruptcy:

• 2 year waiting period after the discharge date of Chapter 7
• Re-established credit after Chapter 7
• No late payments after Chapter 7
• Minimum 580 FICO
• Re-Establishing Credit After Bankruptcy To Qualify For a Mortgage is strongly recommended
• Gustan Cho Associates has no overlays on FHA Loans

VA And HUD Guidelines On Chapter 13 Bankruptcy

Here are the qualification requirements to qualify for a mortgage after Chapter 13 Bankruptcy on FHA and VA Loans:

• Borrowers can qualify for an FHA Loan one year into a Chapter 13 Bankruptcy with the approval of the Trustee
• It will be a manual underwrite
• All manual underwrites require verification of rent
• Re-Establishing Credit After Bankruptcy To Qualify For a Mortgage is highly recommended
• There is no waiting period after a Chapter 13 Bankruptcy discharge date
• No late payments during and after Chapter 13 Bankruptcy

Qualifying For Government And Conventional Loans With No Lender Overlays

Many borrowers are told that they do not qualify for a VA or FHA Loan after a Chapter 13 Bankruptcy unless they meet a one to a two-year waiting period. This is absolutely not the case and not true. Under Guidelines of the Veterans Administration and HUD Guidelines, there is no waiting period after a discharge date of a Chapter 13 Repayment Plan. Each lender can have overlays on the waiting period after the Chapter 13 Bankruptcy discharge date and does not have to honor VA or FHA Guidelines. Gustan Cho Associates does not have any overlays on FHA, VA, USDA, and Conventional Loans. Qualify for government and conventional loan with no lender overlay, click here

Frequently Asked Questions (FAQs)

1. What is the process for re-establishing credit after bankruptcy to qualify for a mortgage?
   Re-establishing credit after bankruptcy involves several steps, examples include acquiring a secured credit card, ensuring punctual payments on bills, monitoring credit reports for accuracy, and keeping credit utilization low.
2. What is the waiting period after bankruptcy before I can apply for a mortgage?
   The duration of time you must wait before applying for a mortgage post-bankruptcy varies depending on the type of bankruptcy filed and the specific loan program. Typically, it ranges from 1 to 4 years.
3. What types of mortgages are available to individuals with a bankruptcy on their credit report?
   Various mortgage options are available, including FHA loans, VA loans, USDA loans, and conventional loans. Each has different eligibility requirements and waiting periods after bankruptcy.
4. What credit score do I need to qualify for a mortgage after bankruptcy?
   The necessary credit score for eligibility for a mortgage post-bankruptcy varies according to the lender and loan program. Typically, a higher credit score enhances the likelihood of approval and enables you to secure more favorable terms.
5. Can I get a mortgage after bankruptcy if I have a co-signer or co-borrower?
   A co-signer or co-borrower with strong credit and income may increase your chances of qualifying for a mortgage after bankruptcy. Still, it’s ultimately up to the lender’s discretion.
6. How can I improve my chances of getting approved for a mortgage after bankruptcy?
   Enhancing your likelihood of approval involves showcasing responsible financial conduct, rebuilding your credit, saving for a larger down payment, and providing a detailed explanation of the circumstances that led to your bankruptcy.
7. Will bankruptcy impact the interest rate on my mortgage?
   Bankruptcy may affect the interest rate you qualify for on a mortgage. Generally, individuals with a bankruptcy on their credit report may be offered higher interest rates than those with excellent credit.
8. What documents must I provide when applying for a mortgage after bankruptcy?
   You’ll typically need to provide documents such as tax returns, pay stubs, bank statements, proof of assets, and a detailed explanation of the bankruptcy discharge.
9. Are government programs or assistance available for individuals re-establishing credit after bankruptcy for a mortgage?
   Some government programs, such as housing counseling services and down payment assistance programs, offer assistance to individuals re-establishing credit after bankruptcy. It’s advisable to research available resources and speak with a housing counselor or mortgage lender for guidance.
10. What steps can I take to maintain good credit and financial stability after obtaining a mortgage post-bankruptcy?
    Sustaining favorable financial habits, such as making timely payments and keeping credit card balances low, is essential. Additionally, steering clear of accruing new debt and always monitoring your credit report for accuracy are crucial steps. Establishing a budget and setting aside funds for emergencies can further contribute to maintaining financial stability.

Borrowers who are told that they do not qualify for an FHA or VA Loan after a Chapter 13 Bankruptcy, contact us at (800) 900-8569 or text for a faster response. Gustan Cho Associates has no overlays on government and conventional loans. Our viewers can also email us at alex@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays to take your mortgage inquiries.

This blog on re-establishing credit after bankruptcy was updated on February 15, 2024.

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