With interest rates remaining at record lows, many people are looking to invest in a home before it’s too late. However, there are many people who completed bankruptcy and may be wondering whether they are even eligible to obtain a mortgage loan.
The short answer is: Yes. Many people will qualify for mortgage loans after filing for bankruptcy. The timeline for obtaining the loan will vary by each person’s unique financial situation, but it is possible. In fact, many people qualify for a better type of loan at a better rate after having completed a bankruptcy. If you have been relieved of your debt burden though bankruptcy and considering buying a home, there are a few things you should do before signing that loan application.
Take a look at your credit
Your credit history is the most important aspect of your financial life post-bankruptcy. Although a bankruptcy is reported on your credit report, your delinquent account status will be eliminated and you will be able to rebuild your credit score much faster than before the bankruptcy. In fact, many people even see an increase in their credit score after bankruptcy, depending on how long their accounts had been considered delinquent. It is important you review your credit report after a bankruptcy to make sure the appropriate changes to your accounts are current and accurate. If your credit report is inaccurate, or does not reflect the debt resolution changes of the bankruptcy, contact your creditor to have the mistake corrected as soon as possible.
Although you may have your debts erased and a fresh zero balance on your accounts, it may be difficult to obtain large loans right after a bankruptcy. Apply for a low limit line of credit or two and maintain a manageable balance while making consistent payments. You should work on rebuilding your credit history for at least 6 months before applying for larger loans such as a mortgage. This is also the perfect time to begin saving money for a down payment. Lenders are already fairly stringent with their qualification standards, so having a larger down payment will make you less of a risk for the lender.
Shop around for the best loan
When looking to buy a home after bankruptcy you might feel lucky to even be considered for a loan, but this doesn’t mean you have to take the first loan that comes along. As with any major purchase, always review your options and compare the terms and conditions of the loans. After a bankruptcy you may be offered less favorable loan terms, which can influence your monthly payment and cause unpredictable changes to your loan. Make sure you have reviewed your current and projected monthly payments in order to protect yourself from defaulting on your mortgage loan, or putting yourself at risk for foreclosure.