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Taking Care of Your Mortgage after Bankruptcy
October 4, 2020

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Taking Care of Your Mortgage after Bankruptcy With DebtQuest USA

Handling financial matters is challenging; one should know how to control and allocate their funds. Sadly, sometimes we fail in this aspect. Truly, facing financial problems is one of the most difficult situations someone can experience, like bankruptcy. Read on to find out how to take care of your mortgage after going through bankruptcy.

Taking Care of Your Mortgage after Bankruptcy With DebtQuest USA

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Is a Mortgage Loan After Bankruptcy Possible?

Some people may think that bankruptcy is the end of their dream of getting their own house for themselves or for their family, but it is not. Because yes, home loans after bankruptcy are possible. Declaring Chapter 7 or Chapter 13 bankruptcy is often devastating and can make getting a loan after bankruptcy and buying a house a challenge, but it is not impossible.

Post-Bankruptcy Mortgage

In getting a mortgage post-bankruptcy, it is nice to own a credit card so you can start fixing and building your credit again. Make sure to stay on top of your payments every month and pay credit card bills, full payment if you possibly can, on time. In doing these, you can start to rebuild your credit score, which lenders would consider when you apply for a mortgage soon.

Your score is proof of your credibility when trying to get yourself a post-bankruptcy loan with a mortgage lender. Some other things to consider include:

  • How much you earn
  • Loan-to-value ratio of the property
  •  Other assets that you may have

Overview of Mortgages

A mortgage is a loan and an agreement made between you and a lender. With a mortgage, the lender will gain the right to take any of your properties if ever you fail to repay the borrowed money with interest. Mortgages are used for buying houses. It is an essential financial decision to make, especially after bankruptcy, so it is important to not be impulsive.

For any type of mortgage, it is important to remember these tips:

Assess Your Financial Health

Identify which mortgage is suited for your situation by evaluating your income, credit history and score, employment, and your financial goals.

Find a Mortgage You Can Afford

Lenders will probably tell you the amount you are qualified for – this is how much they are willing to lend you. If you look it up and try out some calculators online, you will probably end up with the same answers. But remember that the amount you could borrow does not equate to how much you can actually afford. Lenders do not consider all your family and financial conditions. For you to have an idea of how much you can afford to repay, you must take a good look at your family’s income, the expenses, and savings priorities, to see how much is suitable for the budget you have.

Build Your Credit

Being bankrupt, you are quite prohibited from borrowing money or even using a credit card, thus greatly decreasing your credit score. It would require some time to get enough credit back to be able to loan yourself a home. But to keep you optimistic, you may be able to take a bankruptcy mortgage sooner if you prepare properly, be patient, and plan your finances.

A credit score is a three-digit number that lenders are wary of. The number can be any number between 300–850 and used to assess how probable a person can timely pay loans. A credit score is usually based on credit history: how many accounts you have that are still open, your total levels of debt, and your repayment history. The higher your credit score, the higher the chances are that you can be qualified for loans.

Since it is really important to build your credit after bankruptcy, below are some ways to help you and raise your score again:

  • Do not use all your credit and do not apply for too much credit at the same time.
  • Pay on time or better, earlier, before the due date and repay more than the monthly minimum payment if you can.
  • Be stable in your job and stay for a long period of time.
  •  If you have an account for your credit cards, contact them and inquire if you can increase your credit.
  • Let the credit cards you are not currently using remain open.

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How Long After Bankruptcy Can I Get a Home Loan?

You are probably wondering: “How soon after bankruptcy can I buy a house?” Waiting only starts when the bankruptcy is already discharged or dismissed, and you ensure that your case is closed. When this happens, you are once again given the responsibility of repaying your debts outside of bankruptcy.

But you should be patient because it takes at least two years after bankruptcy before you can apply to a mortgage. It is possible to apply to a mortgage sooner, but the interest rates would be unpleasant. If you wait after the discharge, on the other hand, you can save money and get a fairer interest rate.

The time or period of how long you are going to wait before getting a mortgage depends on what type of bankruptcy you filed, Chapter 7 or 13, and what mortgage loan type you are planning to apply for.

To get a mortgage after Chapter 7 and mortgage after Chapter 13, you would have to wait for a maximum of four years before applying. Below illustrates how long you must wait for any type of loan:

Mortgage Loan TypeChapter 7Chapter 13
Conventional 4 years2 years after discharge

4 years after being dismissed

FHA 2 years1 year
VA2 years1 year

Technically, for Chapter 13, the length of time you will have to wait is different for bankruptcies that were discharged and bankruptcies that were dismissed. If you want to wait for a shorter amount of time, make sure that you are working on completing your plan successfully and have already started paying your own debts, on top of being stable financially, because all of those factors will be considered. On the other hand, if you were unable to complete the repayment plan for Chapter 13 and were given a dismissal, you would have to wait for a longer period of time.

Chapter 13 bankruptcies record will no longer exist after 7 or 10 years after the filing date, while Chapter 7 bankruptcies remain on reports of your credit for 10 years from their filing date. The credit reporting agencies usually automatically delete the record from your credit report after these waiting periods end, but it would still be a good idea to check your credit report to make sure that it is removed on time.

Filing for bankruptcy really has large consequences on your credit score, and they cannot be easily resolved. If you push for applying with this, you will possibly only be allowed and accepted for a mortgage with a higher interest rate with a larger amount of down payment.

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Applying for a Mortgage After Bankruptcy

Making sure you are fully prepared to take on a loan is important after waiting for at least two years. Although, your lender will still see if you qualify within specific criteria before actually lending you money. The criteria may include a good debt-to-income ratio and stability. Your credit will also look better if you have money in the bank, has no bounced checks, and if you have any retirement plans. As it comes with a large amount of down payment, saving as much as you can, will really be a great help.

But if you are still considering getting a mortgage just right after your filing, here are some major tips for you:

Find and Talk to an Adverse Lender

Lots of the common and usual lenders are very cautious and tend to avoid people who have been bankrupted because of the associated risks when dealing with them. This is when adverse lenders, or sometimes called specialist lenders, come into the picture. These lenders may consider your application for a loan even if the bankruptcy can still be seen and is still recorded in your credit.

Take note that bankruptcy stays in your credit profile for some years, usually six. And even if these lenders accept your application within that period, they are more likely to charge you with a higher rate of interest because of recognized risks. If you successfully took a mortgage from an adverse lender and fully paid your due repayments on time, your credit score or rating would begin to recover. And with a better credit score or rating, there would come the point in time that you can finally go to a conventional lender who would be offering more convenient and fair rates of interest.

Like what was mentioned, you can opt to try and get a mortgage after the dischargement of your bankruptcy and just wait and save for the meantime. After that, your bankruptcy will be gone from your profile, and it will be more convenient to apply for a mortgage.

Go See a Mortgage Broker

It is important to remember that this second piece of advice should be noted and taken advantage of. If you really want to acquire a mortgage loan, a broker can give you advice about the possible and available options for you. This advice can be about applying to an adverse lender, or to just wait until the bankruptcy is removed from your file.

Basics of Bankruptcy

Now that you know a bit about how to deal with a mortgage after bankruptcy, let’s examine in close detail what bankruptcy is and whether it is right for you. Bankruptcy is a legal procedure where people and businesses who are not able to repay their remaining debts are involved. It usually happens in federal courts, and it helps them manage their debts which they usually find hard to do.

You may never see a bankruptcy coming your way and might dishearten you. Bankruptcy just really happens when there is nothing more a person or a business can do to repay all their debts, thus filing for bankruptcy would be the last resort or option.

To begin the process of filing for bankruptcy, the debtor, which is usually the one who does this, shall file a petition, or it can be done on behalf of creditors, which is not very common. The assets of the debtor will all be measured and assessed. Some of the outstanding debts can be repaid with these existing assets.

Although there are lots of bankruptcy filing types, the two most common and most preferred categories of bankruptcy you can file are Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy — Liquidation

It is common for individuals with few to no assets to file Chapter 7 bankruptcy. Chapter 7 gives them a chance and power to dispose of their unsecured debts, debts like their balances in their credit cards and medical bills. People with nonexempt assets and cash, stocks, or bonds must liquidate the property to repay some or all their unsecured debts. Nonexempt assets include family heirlooms like valuable or expensive collections and second homes.

To clear their debts, someone will technically be selling off their assets when filing Chapter 7 bankruptcy. If someone does not have assets with value and only have exempt property, they could end up not repaying any part of their remaining debt/s. Exempt properties include household goods, tools for their trades, and personal vehicle/s worth a specific value.

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Chapter 13 Bankruptcy – Adjustment of Debts

Chapter 7 bankruptcy is not applicable for those who do not qualify, specifically, those people who earn large amounts of money. Thus, Chapter 13 is available. This chapter is suited for consumers with a regular source of income and wants to pay their debts but just are not able to do so right now. Instead of filing Chapter 7, they can opt to file Chapter 13 — or the wage earner’s plan. Chapter 13 enables people and even businesses, who have a stable and steady income, to design their own workable plans for repaying their debts.

Plans like these come in installments with over three to five years of payment. Unlike in Chapter 7, in Chapter 13, the court lets the debtors keep all of their properties, excluding only their nonexempt properties, for repaying all their creditors.

Advantages and Disadvantages of Bankruptcy

Although people may think that bankruptcy is already a disadvantage, it still has some advantages. Filing bankruptcy can help relieve people of their legal obligation to pay their debts and save their homes and businesses, depending on which bankruptcy petition they will file. The downside is, it can lower your credit rating, which will make it hard to get a loan, mortgage, credit card, or even rent an apartment.

But if you’re already thinking of filing for bankruptcy, your credit is already probably damaged. It is good to remember that filing for Chapter 7 will remain for 10 years on your credit report while filing for Chapter 13 will stay there for seven. These reports can be seen by creditors and lenders when you apply for another debt and might cause a problem with you getting credit.

Know How to Deal With Your Mortgage After Bankruptcy With Us!

It is difficult to face financial challenges like this alone – one wrong decision and you might end up in a worse situation. If you moved too forward, you might lose all that is left with you. So feel free to contact our team, DebtQuest USA is here to guide you! Our team has already assisted a lot of consumers in repaying their creditors and helped them to start rebuilding their credit with the use of our programs and plans. Our team’s financial experts will help you go through this and achieve that mortgage that you want.

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