Even bankruptcy isn’t a permanent black mark. If bankruptcy is in your past, you may be able to apply for a mortgage after a waiting period. But before we get into that, let’s discuss how you can reestablish your credit so mortgage lenders will feel better about the risk when you’re ready to apply.
Rebuilding credit is a bit like building a house. You have to start with the foundation and work your way up.
You can start by getting a credit card account. You may have to start with a secured account where you put up some of your own money, which functions as the limit for the card. After a few months of making payments, you may be able to apply for an unsecured card so you can show responsibility across multiple credit lines.
It might make sense for you to pay for everything you need with the credit card. The key here is to buy only what you can afford and pay it off completely at the end of every month. In effect, you’ll be treating your credit card a lot more like a debit card, but this behavior will build up your credit every month.
In order to have the best chance of getting a mortgage, you’ll want to build a history of different types of debt. Credit cards are revolving debt. Once you’ve built up some credit with credit cards, it will be easier to get approved for things like installment debt in the form of a personal loan or car loan.
Getting a Mortgage
The most important thing for you to know is that there are waiting periods after a bankruptcy before you can get a mortgage. In most cases, the soonest Quicken Loans can help you refinance your house or get into a new one is one year after the discharge or dismissal of your bankruptcy.
The length of the waiting period depends on the type of bankruptcy you filed for and the type of loan you want to get.
FHA loans are a pretty good option if you want to get a mortgage after bankruptcy. If you have a Chapter 7 or Chapter 11 bankruptcy in your past, the bankruptcy has to be discharged or dismissed for two years prior to application. If the bankruptcy is a Chapter 13, it can be dismissed just one year prior.
VA loans are another good option. Your Chapter 7 or Chapter 11 bankruptcy must be dismissed for two years before you apply for a VA loan. And there’s no waiting period if you filed for Chapter 13 bankruptcy; you can apply for a mortgage as soon as it’s dismissed.
Loans insured through Fannie Mae or Freddie Mac have a major advantage over FHA loans: Mortgage insurance comes off once you reach 20% equity in your home.
Unfortunately, if you try to get a conventional loan after bankruptcy, you’re going to have to wait a little longer. Chapter 7 and Chapter 11 bankruptcies must be dismissed at least four years prior to application for a conventional loan.
In the case of conventional loans with a Chapter 13 bankruptcy, the waiting period depends on whether your loan was discharged or dismissed:
- If the bankruptcy was discharged, you must wait four years from the date of filing and two years from the date of discharge before applying for a conventional loan.
- If the bankruptcy was dismissed, the waiting period is four years between dismissal and application.
As with any major financial hit, there’s a road to recovery. Still, if you are diligent and disciplined, you can get a mortgage after bankruptcy. You can talk to one of our Home Loan Experts about your options, or call (888) 728-4702.
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