Filing for bankruptcy can eliminate your debt and make it affordable for you to buy a house. However, your bankruptcy filing can affect your ability to take out a loan. So, you should not assume you will qualify for a loan the day following bankruptcy discharge because the majority of lenders will not take a chance on you right away. If you are considering buying a house after bankruptcy, it is best to consult with your Charleston, WV bankruptcy attorney to know your eligibility and legal options.
Kind of Mortgage You Can Take Out Following Bankruptcy
Even if you filed for bankruptcy, this does not mean you will be barred from taking out a certain kind of loan. You just need to meet the required waiting period before you can apply for any kind of loan after your bankruptcy discharge. However, you can qualify for some kinds of mortgages loans easier than others. The loans include FHA loans which tend to have shorter waiting periods than others.
An FHA loan has lower credit requirements. Despite the discharging of your bankruptcy, the filing will still have a negative impact on your credit score. Your Chapter 7 bankruptcy will remain on your credit report for ten years while a Chapter 13 bankruptcy stays for up to seven years. Although you will have a lower credit score during this time, an FHA loan allows you to purchase a house with at least a 580 credit score. In fact, a 500-credit score can get you the house you want as long as you can make at least a 10% down payment.
Applying for a Mortgage after Bankruptcy
When you apply for a loan after bankruptcy, you should take the following steps to increase your chances of success:
- Repair your credit. A credit score of 580 or lower is not good enough to meet the minimum credit score requirements of mortgage lenders. So, you must take your time to repair your credit after bankruptcy. You should re-establish your credit by obtaining a secured credit card, paying down debt, and paying your bills on time.
- Write a bankruptcy explanation letter. This letter will tell lenders more information about your bankruptcy and the reason you must declare bankruptcy. Ensure your letter includes information on the circumstances that resulted in your bankruptcy filing and how this decision has changed your financial life.
- Get a pre-approval. After you have gone through the waiting period and organized your finances, you can consider getting pre-approved for a mortgage loan. When pre-approved, you will get a letter from a lender that tells you the amount of money you can borrow from them.