Which Mortgage Lenders Offer Mortgages After Bankruptcy
Currently, theres about 20 discharged bankrupt mortgage lenders. They include Accord Mortgages, Kent Reliance, Metro Bank and Vida Homeloans. Some mainstream providers such as Halifax and Santander might consider offering favourable rates and ignoring the bankruptcy once its over a certain number of years discharged , under the right circumstances.
Bad credit mortgage lenders are for bankruptcies discharged less than three years ago and tend to come with higher fees and slightly higher rates.
Because each lender and each customer is different, its impossible to say which youll be eligible for without knowing more about your situation.
If youve been made bankrupt in the past and are looking for a mortgage, there are a few things you can do to make sure you have the best chance of being approved.
Buying A Home After Bankruptcy
If youve declared bankruptcy in the past, know that youre not alone. Further, know that your situation is nothing to be ashamed of. No one wants to declare bankruptcy sometimes, it may be the only solution to a difficult situation. If youre now thinking of buying a home after bankruptcy, you may be wondering how it would work.
I see lots of clients after their bankruptcy has been discharged or their consumer proposal has been completed. Theyll often tell me they dropped in at their bank branch or another mortgage broker, but they have either been turned down or found that their calls for information dont get returned. This may give the mistaken impression that there is nothing to be done. Dont be discouraged! You can and will put this behind you. You just need the right planning and commitment.
Buying A Home Using Conventional Loans After Bankruptcy
Conventional loansthose made by banks and mortgage companies without government backingare often sold to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation . Fannie Mae and Freddie Mac set borrower guidelines for the mortgages they’re willing to purchase. Although a lender might be more lenient in its qualification criteria, most private lenders will respect the guidelines to make their mortgages sellable. Here are the waiting periods after bankruptcy.
- Chapter 7 bankruptcy. If the bankruptcy were due to your financial mismanagement, you’d have to wait 48 months, but if the bankruptcy were out of your control, you’d be eligible after 24 months.
- Chapter 13 bankruptcy. You must wait 24 months after discharge. If the court dismisses your case without a discharge, the waiting period will increase to 48 months. If, however, you can show that you filed the case under extenuating circumstances, you’ll only have to wait 24 months.
- Multiple bankruptcy cases. If you’ve filed more than one bankruptcy in the last seven years, it will be five years before you’re eligible, or three years if you can show extenuating circumstances. But this is still shorter than the seven years Fannie Mae requires after a foreclosure.
Also, keep in mind that Fannie Mae expects you to work toward rebuilding your credit during the waiting period.
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Fha Loans After Chapter 7 Bankruptcy
Fortunately, you can qualify for an FHA loan following Chapter 7. But be prepared to wait a while before youll get approved.
Bankruptcy will not stop you from making a large purchase, like a home, in the future. So yes, it is possible to obtain an FHA home loan after Chapter 7 bankruptcy, says Jeremiah Heck, a debt and bankruptcy attorney.
Typically, you have to wait for a minimum of two years after your bankruptcy is approved by the courts to be eligible.
But in some cases, the mortgage lender may require additional time.
For instance, some banks tend to ask potential borrowers who filed Chapter 7 bankruptcy to wait a total of three years before they are eligible, adds Heck.
In addition to the waiting period, youll need to meet other FHA loan requirements. These typically include:
- Down payment of 3.5% or more
- Debt-to-income ratio below 50%
- Steady income and employment
- Income source expected to continue for 3 years
Avoiding any new debts after bankruptcy for example, a car loan or personal loan can help your chances of qualifying for an FHA mortgage once the 2-year waiting period is over.
Requirements for other mortgage loan types
An FHA loan isnt the only loan type that can get you on the fast track to homeownership. VA loans also have a minimum waiting period of two years from the date of your Chapter 7 discharge.
To qualify for a VA loan, you need to be an eligible veteran, service member, or member of an associated group .
Bankruptcy Foreclosure Short Sale And Your Credit Score
If you want to buy a home despite a bankruptcy or foreclosure on your record, you’ll need to clean up your finances. The single most important step is repairing your . Your credit score is your financial lifeblood, a tool that you wield to get a mortgage loan approval. You cannot get a mortgage without a credit score and credit history that proves to lenders that you can be counted on to repay the loan.
As you plot your strategy, first assess the damage to your credit score. That depends on a number of factors, including your credit history before your trouble with homeownership. If you had a high score before the foreclosure, bankruptcy or other negative event, your credit score probably dropped further than those whose scores were always lower. According to FICO, creator of the FICO credit score, a foreclosure or similar event could derail your credit score by 100 points or more.
The damage to your credit score also depends on the type of home loan woes you suffered. According to FICO, a bankruptcy is on average more damaging to your credit score than a foreclosure, short sale or deed in lieu of foreclosure. A short sale or deed in lieu of foreclosure can be just as damaging to your score as a foreclosure credit reports don’t generally differentiate between these types of foreclosure alternatives.
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Can I Get A Mortgage If Ive Been Bankrupt
Yes, you can get a mortgage after bankruptcy. But it can be more difficult compared to someone with a good credit score. Thats because most big banks will refuse to give you a mortgage if youve ever filed for bankruptcy. Theyre just not set up to deal with complex situations. But there are specialist lenders who will consider you, so you do have options.
If youre an ex-bankrupt, you may feel anxious about what your borrowing options are. You should work with a specialist mortgage broker whos dealt with people just like you. Theyll have good relationships with the specialist lenders and will be able to find the right mortgage at the right rate.
Its a mortgage myth that youll never get credit again after being bankrupt. Were working to address the misconceptions and remove the stigma that comes with bad credit. The Brokers we work with know which mainstream or specialist lenders to approach wholl offer you the most competitive interest rates. Theyll know the best options available to you and how to get you a mortgage approved with a bankruptcy. See how it works
How Long After Bankruptcy Until I Can Get A Mortgage
You can apply for a mortgage as soon as you’ve been discharged from your bankruptcy. However, the more recent your bankruptcy, the harder it will be to get approved. You should also carefully consider your current financial situation and whether you’ll be able to afford the monthly repayments.
Time is a healer, so it’s best to wait until your credit score has improved before applying for a mortgage. Keeping to good habits will prove to lenders that you can be trusted to keep to your monthly repayments. Read more in our Guide: How to Improve Your Credit Score Before Applying for a Mortgage.
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First Things First: The Bankruptcy Discharge
How long after bankruptcy can you buy a house? It varies. However, to even be considered for a mortgage loan request, the bankruptcy must first be discharged. A bankruptcy discharge is an order from a bankruptcy court that releases you from any liability on certain debts and prohibits creditors from attempting to collect on your discharged debts.
In simple terms, this means you dont have to pay the discharged debts, and your creditors cant try to make you pay. A discharge of your debts is just one step in the bankruptcy process. While it doesnt necessarily signal the end of your case, it is something lenders will want to see. The court often closes a bankruptcy case shortly after the discharge.
Buying A House After Chapter 7 Bankruptcy
If you had a bankruptcy discharged a year ago or more, you might be starting to get your finances back in order. Maybe youre even thinking about buying a house.
But theres a waiting period before you can take out a mortgage usually at least two years. And lenders will be looking closely at your credit score, credit reports, bankruptcy discharge details, and other factors to ensure you qualify.
Tread carefully after bankruptcy and take steps to improve your credit. With hard work and patience, youll eventually be able to get a home loan.
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How To Get A Mortgage After Bankruptcy
Getting a home loan after bankruptcy is possible, but it will require patience on your part. Youll also need to take steps to increase your chances of mortgage approval after bankruptcy.
A bankruptcy will lower your significantly which signals to creditors that you are a lending risk. And it will impact your score for years to come. A Chapter 7 bankruptcy remains on your credit report for up to 10 years, while a Chapter 13 remains for up to seven years.
While you dont need to wait for a bankruptcy to disappear from your credit report to get a mortgage, you must adhere to a waiting period before applying. How long youll have to wait depends on the type of bankruptcy you file, as well as the type of mortgage you plan to get. If extenuating circumstances are present such as a divorce, job loss, illness, death of a primary earner or other unforeseeable events you may qualify for a home loan sooner.
Heres a brief overview of how long youll need to wait to apply for a mortgage after Chapter 7 and Chapter 13 bankruptcy.
|No waiting period|
What Are Conventional Loans
Conventional loans are those originated by banks, credit unions and online lending sources.
They are not guaranteed by the government, but they typically have the best interest rates and terms, which means lower monthly payments. The most common type of conventional mortgage is 30-year fixed-rate, which accounted for 79% of mortgages between 2019 and 2021, according to ICE Mortgage Technology.
Conventional loans require a credit score of 620 or higher. The higher the score, the better the terms. One of the biggest advantages is that a down payment of 20% means you dont have to pay private mortgage insurance, which can add thousands to a mortgage.
Even if you dont put down 20% at the closing, once the equity in the house reaches 20%, the PMI is dropped. With an FHA loan, it never drops, and you have to pay a one-time up-front premium of 1.75% of the base amount of the loan.
The waiting period for a conventional loan after bankruptcy is:
- Chapter 7 Four years after discharge date
- Chapter 13 Two years. If the case is dismissed, which happens when the person filing for bankruptcy doesnt follow the plan, its four years.
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How Soon Can I Get A Mortgage After Bankruptcy
Some specialist lenders might consider your mortgage application immediately after youre discharged from bankruptcy. Others might prefer you to have been discharged for at least 12 months or for several years.
The main issue facing borrowers is their deposit amount. The more time that has passed since your discharge, the more likely a lender will be to accept you for a higher Loan to Value product. If youve been discharged bankrupt for a year or less, a lender may need you to supply a deposit of at least 50%. After 2 or 3 years, provided you can prove good money management, this could drop to 25% LTV. When you have been discharged for over 6 years, you could become eligible for 95% mortgages.
Saving For A Down Payment Can Help
Another smart move? While you are waiting to apply for a mortgage, save up as much as you can for a down payment. If you can save up at least 20 percent of your homes final purchase price to use for a down payment, youll increase the odds of qualifying for a lower interest with your mortgage. Thats because your lender will see that youve invested more of your own money upfront in your home purchase. That makes lenders more comfortable, especially when dealing with borrowers who have bankruptcies still on their credit reports.
Coming to lenders with a sizable down payment, little new debt and a credit score that is heading up instead of down is the best way to show mortgage professionals that the financial missteps that caused your bankruptcy are now in the past.
You might still have to shop around to find the lender willing to give you the best interest rates and fees. Fortunately, you can work with any lender licensed to do business in your state, which should give you plenty of options when youre searching for fees and rates.
Most lenders arent interested in helping someone while theyre still drowning in debt, said Sam Wax, president of My Easy Mortgage in Tampa, Florida. The reestablishment of credit and, specifically, revolving debt, typically helps most consumers optimize their credit scores and show the lender they have the capacity to make mortgage payments on time.
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What Happens To Your Credit Score After Filing Bankruptcy
Chapter 7 bankruptcy and Chapter 13 bankruptcy filings show up on your credit report. How long it shows up depends on which type of bankruptcy you file. Chapter 7 bankruptcy stays on your credit report for 10 years after the filing date. A completed Chapter 13 bankruptcy stays on your credit report for 7 years after the filing date, or 10 years if the case was not completed to discharge.
As a result, filing bankruptcy will initially lower your credit score. How much your credit score will drop depends on how high or low it was before bankruptcy. Generally, a decrease between 100 to 200 points can be expected.
The good news is that you can begin rebuilding your credit as soon as your bankruptcy discharge is entered. It’s possible to have a better score within 1â2 years of filing. The credit scores of most bankruptcy filers are already lower because of missed payments. After the court grants a discharge, most unsecured debts are erased. Credit scores improve because there are no more missed payments and discharged accounts show a zero balance.
After Chapter 7 and Chapter 13 bankruptcy is filed, you will get credit card offers in the mail. These offers can be for secured credit cards, sometimes called prepaid cards, which require a cash deposit. Or, offers can be for unsecured credit cards, but will likely have high interest rates or annual fees.
Making Changes To Your Bankruptcy Forms
Your bankruptcy forms are signed under penalty of perjury. When you file, you’re declaring that the information in your bankruptcy forms is true and correct to the best of your knowledge. If you accidently leave something out or make a mistake, you’ll need to make changes to your forms.
This is done by filing an amendment with the court. You might need to file an amendment because you forgot to list an asset or a , you need to add information that was originally missed, you change your mind about signing a reaffirmation agreement, or the trustee requests that forms be amended.
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United States Department Of Agriculture Loan
Low- and middle-income borrowers willing to purchase a home in a rural community will benefit from this loan. It offers a low-interest, no down payment option for those who might not otherwise be able to qualify for conventional financing.
Applicants will be eligible for this loan three years after receiving a Chapter 7 discharge. However, if you qualify for the exceptional circumstances exceptionfor instance, by demonstrating that the bankruptcy was beyond your control and not a result of financial mismanagementyou might be able to qualify as soon as 12 months after the discharge.
A Chapter 13 bankruptcy filer can apply after 12 months of successful plan payments, or sooner on a showing of exceptional circumstances. To find out more, visit the United States Department of Agriculture Rural Development website.
You May Need A Credit Score Of 500 Or Higher To Buy A House
The waiting period and loan approval are essential factors, but some loan officers will not consider you until you rebuild your credit score. Credit scores typically range from 300 to 850.
For each type of loan, you need a credit score of the following:
- FHA loan: 500+
- VA loan: no minimum credit score
- USDA loan: 640+
- Fannie Mae or Freddie Mac: 620-640 is the lowest they will accept
If your bankruptcy was years ago, but no one will loan to you, you may have options. There could be misinformation on your record or an outdated credit score.
Talk to a bankruptcy attorney about the issues you face in the home buying process to learn about your options. A new home is attainable within one to two years after bankruptcy if you take the right steps and seek legal guidance during the bankruptcy journey.
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