How Can I Secure a Mortgage Loan After Bankruptcy?

Your home may have been taken away during Chapter 7 bankruptcy if your trustee needs to use the liquidated funds to pay off your outstanding creditors. Or, you may have voluntarily surrendered it in Chapter 13 bankruptcy if the mortgage was unaffordable for your given repayment plan. Either way, once you make it to the end of this bankruptcy process, you may yearn to own a place once more. That is, you may be eager to submit a mortgage loan application. If so, please continue reading to learn how to get approved for a mortgage loan after bankruptcy and how an experienced Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can help you with this important application.

How likely am I to secure a mortgage loan after a bankruptcy case?

We would like to assure you that many bankruptcy debtors are successful in securing mortgage loans. However, they may have to wait a year or so after their case closes to execute this. Most commonly, for a conventional loan from a bank, credit union, or other financial institution, you may be up against a mandatory waiting period of four years from the date of your Chapter 7 bankruptcy discharge. As for Chapter 13 bankruptcy, this hold may be shortened to two years.

Or, say that you choose to opt for an FHA loan or otherwise meet the eligibility criteria for a VA loan. For these loan types, the wait is one or two years from your Chapter 13 or Chapter 7 discharge date, respectively. If your house of interest qualifies for a USDA loan, you may be delayed anywhere between one to three years from your Chapter 13 or Chapter 7 bankruptcy discharge date, respectively.

What can I do to prepare for my mortgage loan application beforehand?

As you may already know, your credit score may drop an average of 130 to 240 points after undergoing the bankruptcy process. Now, the credit score requirements are especially strict for conventional loans as opposed to government-backed loans (i.e., FHA, VA, and USDA loans). And so, if you are applying for the former, it is in your best interest to build up your credit score, starting years in advance. This means paying your bills on time, not racking up too much debt, and not applying for excessive lines of credit.

Arguably, improving your credit score goes hand-in-hand with budgeting and saving sufficient funds. It may also be helpful if, when the time comes to apply for a mortgage loan, you can show the lender that you can supply a considerable down payment. Particularly for an FHA loan, you may be expected to have a credit score of at least 580 with a 3.5 percent down payment, but only 500 if you can put down 10 percent.

If you need help preparing for this upcoming bankruptcy or mortgage loan process, turn to a skilled Louisville, Kentucky consumer bankruptcy lawyer. We at Schwartz Bankruptcy Law Center have gone through this countless times before, and we are ready to go through it again to support you.