How to get a mortgage after bankruptcy.

Life after bankruptcy is tough. Bankruptcy may free you from the burden of heavy debt, but you will have bad credit and a bad financial reputation. As a result, you might not have access to many financial opportunities. If you had plans to own a home, bankruptcy puts them in jeopardy.

Banks are very risk adverse, so they often won’t issue a new loan to someone with bad credit and a previous bankruptcy. Mortgages are important not only as an investment, but also as a symbol of stability. You have your own home, a place you can call your own. While it can be difficult to get a new mortgage, you can take a series of steps to achieve your goal.

To secure a mortgage, you need to show lenders you are worth the risk of a loan. They look at your financial stability and your credit score to make their decision. To get a loan, you need a plan to stabilize your financial situation and collect the necessary resources to show you can handle a mortgage. Follow these three steps to create your financial plan.


Get on Top of Your Credit

When it comes to bankruptcy, the amount of time after a bankruptcy determines if you get a new loan. Typically, banks will only give you a loan two years after your bankruptcy is discharged. In the meantime, you need to stabilize your financial situation and increase your credit score.

After you declare bankruptcy, your first move should be to balance your budget and begin saving money. Next, establish a history of good credit practices. Here is a list of things you can do to get a better credit score:

  • Pay your bills on time. If you consistently pay bills you show reliability, while missing a bill can derail your credit score.
  • Get a credit card and manage it well. Don’t let your balance exceed more than 30%. The best practice is to pay off the card before any interest accumulates.
  • Monitor your credit report. Make sure it accurately represents your history and dispute any records that have expired. For example, a bankruptcy should only stay on your credit history 6-8 years.
  • Slowly accumulate and repay smaller loans, like a car loan. If you can pay off a car, you show the banks you can be trusted with a mortgage.
  • Pay all outstanding taxes. Lenders will request tax records when you submit an application. They will see unpaid taxes as a sign you are high risk.


Get the Right Loan

Two years after your bankruptcy discharges you can look into getting a mortgage. Even after two years, it may still be difficult to obtain a mortgage right away. In addition to reluctant banks, high interest rates may prevent you from getting an affordable mortgage.

You can get around stingy banks and prohibitive interest rates if you choose the right lender. Some lenders are more open to mortgages for lower credit scores or provide you with special options. Be sure to shop around on your own or with professional help to find the right plan for you, and be careful to avoid unnecessary risks. Avoid high risk mortgages, they could undue your financial plans.

You can increase your chances of getting a loan if you make proper preparations. Go to lenders with a plan and proper resources. Here are some ways to prepare for your application:

  • Save up for a down payment. The more money you can put down on the loan, the less risk there is for the bank. You should have at least 10% down as payment for a general rule.
  • Accumulate other assets. Lenders recognize investments or savings as a sign of financial stability. Besides, you stay financial secure against future problems if you have savings.
  • Have a plan for your lender. They will require you to have a detailed mortgage application. Use this to show lenders you have overcome the problems that led to your bankruptcy. You gain credibility if you have a concrete financial plan to present to a lender.


Take Everything One Step at a Time

If you have suffered a recent bankruptcy, you may feel anxiety about financial planning. However, financial goals take long term plans and actions to succeed. You don’t have to solve your problems tonight, but you should start taking small steps today towards your goal as to be a homeowner. If you carefully plan your way forward, you will have an easier time getting a mortgage.

Bankruptcy can be a scary thing, but it is also an opportunity. The negative consequences of a financial reset are offset by new opportunities you can now pursue. You can still be a homeowner if you declare bankruptcy. Use these steps to become financially stable and able to secure a mortgage in the future.

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  • Annette Murphy

    Clarenville and Conception Bay North area

    Annette has been self-employed in the real estate and retail sectors for many years. From her experiences,...

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