A bankruptcy filing delivers a
devastating blow to your credit
and FICO score, but it doesn’t
mean you have to wait 10 years
before you can qualify for a
mortgage. Many consumers who
have filed for bankruptcy have
been able to obtain a mortgage,
although it is often at a higher
rate than someone qualifying for
a prime or "A-paper" loan.
While credit card companies may
care about what happened before
you filed for bankruptcy, many
mortgage lenders are more
interested in your recovery —
what you’ve done since
your filing. It won’t happen
over night, but here are some
tips and things to keep in mind
when you inquire about a
mortgage with a tarnished credit
past:
Give explanations.
No mortgage lender is going to
ignore the fact that you’ve
filed bankruptcy and he or she
will likely want to know the
cause of the filing. Your lender
will be particularly interested
in whether the same situation
could happen again. Your chances
of being qualified are much
better if your bankruptcy was
caused by a single event such as
a loss of employment or a death
in the family, than if it was
the result of “just spending too
much.”
If the bankruptcy resulted from
a single event, it is important
to show your lender paperwork
describing the incident, such as
the layoff notice or death
certificate. You may also want
to bring in court documents to
indicate when the bankruptcy was
filed.
Demonstrate good money habits
now.
Many people who file bankruptcy
swear off credit altogether,
however, it is important to
re-establish your credit rating.
Get a secured credit card or
take on some sort of loan —
furniture, a car or a major
appliance — to demonstrate that
you are able to make timely
payments. Make sure you are
making other payments (utility
bills, cell phone, etc.) on time
as well. You won't turn things
around in a year but your credit
score will improve over time.
Dispute any credit report
errors.
There’s no need to add to your
troubled credit history with
errors on your credit report.
Get a copy of your credit report
from each of the three major
credit reporting agencies:
Equifax, http://www.equifax.com;
Experian, http://www.experian.com;
and TransUnion, http://www.tuc.com.
If you encounter any errors,
inform the CRA in writing what
information you believe to be
inaccurate and request deletion
or correction.
Save your money.
Lenders may be more willing to
loan you money if you’ve saved
up a considerable amount of
money for a down payment.
Live within your means.
Even subprime lenders won’t risk
loaning you money for an opulent
oceanfront mansion. Think small
when the time comes to look for
a home. Smaller homes often mean
smaller mortgages.