Getting A Bankruptcy With Bankruptcy

Many people have the wrong idea when it comes to getting a mortgage with bankruptcy. Yes, in the past many mortgage lenders rejected individuals who had filed bankruptcy. However, things have changed. For example, it is not necessary to wait seven or more  that many people believed they needed to wait before becoming eligible for a home mortgage.

New Lending Practices

The current economic problems have forced lenders to look at their lending practices differently. Some individuals might not have to wait even the two years normally suggested before applying for a mortgage although it is sometimes best to use that period of time to build a good credit score which will almost guarantee a much lower interest rate.

Not only the interest rate needs to be taken into consideration when considering a mortgage with bankruptcy, but also the types of mortgages that are available to the individual. Many subprime lenders have more options to choose from depending on the length of time since the bankruptcy was resolved. This is an excellent reason to get the credit score up as high as possible, strengthen the credit score and limit unnecessary additional credit.

The reasons to wait before applying for a mortgage loan are as follows:
1. After a bankruptcy, the individual will be required to put down a larger downpayment since their credit score will reflect the bankruptcy and be low. That downpayment might even be as high as 50% the first year, dropping to 25% the second year. So, after the second year, with good credit, the individual may be able to qualify for a conventional rate and with even a zero downpayment. Financially, it might be worth the wait to get a better home in a better area.
2. After the two year wait, most financing companies will look at other facets of your credit instead of the bankruptcy. Things like your payment history over the previous two years, your debt ratio to income and employment length of time become important.

Less Than Good Credit? 

All is not lost for those individuals who end-up with less than good credit, they may still be eligible for a 30 year fixed rate mortgage and good financing.

Will it be easy? Probably not, as a matter-of-fact, it may be difficult to get a mortgage with bankruptcy, but not impossible since foreclosures are still increasing and people with less than good credit are looking for mortgage loans.

Mortgage lenders are still in the business to make money, so they will figure out how to best tap into the population of individuals who have had to file bankruptcy.

Also, remember that not all peple who do file bankrutpcy do so because they were not able to handle their money properly. Most have lost good jobs, many have had high medical bills others. There may have been a death or divorce or other problems that preceded the bankruptcy.

Tips and Suggestions

Individuals considering trying to get a mortgage with bankruptcy should following these general guidelines:

1. As stated above, it might be better to wait the 2-3 years after a bankrutpcy has been discharged before buying a home. This is because the credit score will generally not be significantly affected until after this time period. During this time build the credit score by paying on time which will enable you to qualify more easily for a mortgage at a lower interest rate.

2. If there was debt which could not be included in the bankruptcy and still exists, buying a home, refinancing the home after a period of time, might enable the individual to pull out enough equity to pay-off those debts which were not cleared by the bankruptcy like student loans or taxes. The best thing is to talk to a financial advisor before making this decision to make sure it is to your advantage.

Since options are available as far as mortgages, it is critical to do research and find the best lender. Contact reputable mortgate lenders and as for loan quotes based on the new credit rating and your income. Remember these lenders are competing for your business, don't go with the first one you checkout. Look carefully at the fine print and the APR (Annual Percentage Rate for a year), after working to get back a good credit rating, you do not want to fall into another financial trap.

Pre-Approval

Get pre-appproved for a loan if possible. This way, you will know what price home to look for, how to budget it into your expenses. Many lenders make the application available online and normally can be completed in minutes with the funds available for your purchase within a few weeks.

Conclusion

The main thing to remember is that there are lending institutions who will lend money, at a good interest rate to individuals who have taken bankruptcy, but you will have to do some credit repairing beforehand to get this good rate.

Experiencing financial difficulties should not keep home ownership from becoming a reality, getting a mortgage with bankruptcy is much easier than most people think.