Chapter 7 bankruptcy is a way to eliminate out of control debt that you can't otherwise pay off. It is designed to give you a financial clean slate so that you can rebuild your credit and emergency savings without having to go even further into debt. One of the major drawbacks of Chapter 7 bankruptcy is that it remains on your credit report for years and can make it harder to get approved for a mortgage. Getting a mortgage after Chapter 7 is far from hopeless, however, and following these tips will help:
Be Prepared to Wait Two Years
Many mortgage lenders will now consider those with bankruptcies on their credit reports as long as the bankruptcy was at least two years ago. This is a shorter timeframe than it used to be, and allows lenders to give those who've made financial mistakes in the past a second chance. If it hasn't yet been two years since your bankruptcy, you can use this time to build your credit and save for a down payment. You can also meet with a mortgage broker to see if there are other specific steps you should be taking for your unique situation.
Actively Improve Your Credit
You can improve your credit dramatically after a Chapter 7 bankruptcy, but this isn't a passive process. It requires deliberate planning and thought. The best option is to open a credit card (or a secured card if that is all you will be approved for) and pay the balance in full every single month. Only charge a small amount to keep your debt to credit ratio in a good place. You can also apply for an installment loan and pay this diligently as well. The key is to take out only a very small amount of debt compared to what you can afford, so you won't get in over your head again.
Save as Much as Possible
Besides your credit, the biggest factor in mortgage lenders approving your application is typically the size of your down payment. If you can save up for a large down payment, you are seen as less risky. Plus, since the down payment goes toward the total balance of your loan, your mortgage payments will be smaller and you will pay the home off sooner. You may want to get a weekend job and put all of the earnings in savings, ask for a raise, live with family temporarily to save up, or sell an asset to come up with as much money as possible.
By following these tips and working with an experienced mortgage broker, you will soon be on your way to home ownership.Share