Obtaining A Mortgage Following Bankruptcy and Foreclosure

Many people find themselves in financial trouble at some point in life and end up having to file for bankruptcy or foreclosure. You don't have to abandon your dream of owning a home. The dream may need to be put on hold for a while. You can also use this time to improve your credit score and save for a downpayment.

 

Credit Reports Are Important

If you have ever been in bankruptcy or foreclosed, this will appear on your credit history for at minimum seven years. It should then be deleted automatically. You should still check it if the time comes.

 

Law requires that the three main credit reporting agencies (Equifax/Experian and TransUnion) provide you with a free copy of your credit report at least one time per year.

There is no way to reverse a foreclosure or bankruptcy. If you find any errors in your credit reports, such as missed payments or bankruptcy filings that are not within your control, you should act quickly. Each credit bureau has a website explaining how to dispute incorrect information.

This is because your credit reports contain the information needed to compute your credit rating. You will pay more interest on a mortgage if your credit score is lower than you would like.

 

Repairing Your Credit

 

However, both foreclosure and bankruptcy can be very damaging to your credit score. But they will fade over time.

To improve your score, you should not only correct any errors in your credit report but also take positive steps.

Make sure that you pay all your bills on a timely basis. Try to keep your debt utilization ratio down. It is the amount of credit you use at any one time in comparison to how much credit you have. A high credit utilization ratio will mean that your credit score and credit score will be negatively affected if all of your credit cards have been maxed out. You should try to get rid of your debts as soon as possible.

If you don’t already have a regular credit card, but are unable to get one, you might consider applying for a secure credit card. Secured cards allow you to make a deposit in a bank. That amount will become your credit limit. Your credit rating will improve by making smaller charges on your secured card and by paying your bills on time each month. In no time, you'll be eligible for an unsecured, conventional credit card. It is important to make timely payments on this one as well.

Maintain Your Job

 

Even if the job you have is not fulfilling, you might be able to stay in it for a while to qualify for a mortgage. Your work history is more reliable and will make you more attractive to potential lenders. Additionally, it indicates that you'll have a stable source of income to cover your mortgage payments.

 

Be Patient

 

If your debts have been eliminated by bankruptcy in less than two years, you'll need to wait before applying for mortgage. You might have to wait longer if you lose your previous home due to foreclosure. This is usually at least three to four years.

 

Getting Ready To Apply For A Mortgage

 

The next step after you have established credit and completed the waiting period is you'll need to ensure that you have at least a 10% or 20% down payment.

Be sure to understand what you are getting into. You will be required to pay higher interest on your loan if you are coming out of bankruptcy or foreclosure. This will impact your ability to afford a home. You probably don't want large mortgage payments if you have had financial difficulties in the past. Here's some advice from Investopedia about how to determine how much mortgage your can afford.

A cosigner may be required by the lender. You might be able to get a co-signer from family or friends. Remember that they can be held responsible if your payments are not made on time. This could cause a rift between you and them.

 

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