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How To Handle Bankruptcy And Get A New Mortgage Loan

January 18th, 2010 by Chris Channing

Lenders always nitpick about small things that might blemish a credit report. The absolute worst blemish it could contain is a bankruptcy- which shows a lender that you may be poor at handling money. It won’t be impossible to convince them otherwise, but it won’t happen without a fight.

Lenders won’t give trust where it isn’t due. When you are fresh out of a bankruptcy, you can expect a mortgage lender to look the other way. It’s going to be a struggle to get a mortgage lender’s attention before two years after the initial bankruptcy. Lenders have to see that you learned from the experience and have had time to build your finances back.

Sometimes mortgages are urgent. An example might be with a family that has since recovered from their financial woes, but still needs a home and can’t find a mortgage. This is the type of case in which a lender might offer a loan a bit sooner than usual. A mortgage obtained a year after a bankruptcy is possible, but you have to prove responsibility and show you learned from prior mistakes.

Even if you could get approved in as little as a year, you might not want to agree to a mortgage so soon. Consider waiting at least two years so that you can pool enough money together to get a large deposit, as well as a fund for emergencies. Your first bankruptcy should never be repeated, and having a “rainy day” fund reserved for emergencies will help keep history from repeating itself. Matching the deposit in a savings account is good practice.

In some cases lenders will allow for someone to vouch for your credibility by cosigning a loan. In the event that you are not able to pay the mortgage loan off, the person who vouched for you will be liable. The problem is finding a cosigner willing to do such a thing. Often parents are a good choice, as even good friends might be wary of a prior bankruptcy. Even a spouse could be enough to get lender approval.

Repair your credit when you are given the opportunity. As soon as you declare bankruptcy, start engaging in methods of smart living and paying bills off on time. It will take several years at the very least to get back on track and get somewhat-normal rates in interest and deposit minimums. Continue your good behavior and you will be able to apply for refinancing as your score continues to build.

Final Thoughts

Banks are very skeptical of new ventures that are risky. This is especially true in the current economy, where banks are failing often and have to make smarter decisions on who to invest in. If you can reduce risk and prove a lesson learned, you shouldn’t have problems getting a new home loan.

Learn more on Discharged Bankruptcy Mortgage and Bankruptcy Second Mortgage.

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