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Previously Bankrupt? You Can Still Apply for a Mortgage With These Insider Tips

Posted By:  |  July 3, 2014  |  0 Comment(s)

red roof house

Many consumers believe that once they’ve declared bankruptcy, it will be impossible to own a home for at least seven years. While it’s true that a negative debt mark is placed on your credit report and can remain there for up to ten years after a bankruptcy, it’s not impossible to secure a mortgage almost immediately afterwards. How is this? There are a lot of factors that are taken into account when a lender estimates the level of debt risk they are willing to assume when extending credit to their customers. In the wake of the recent sub-prime lending meltdown, there are still ways that less-than-prime debtors can secure new lines of credit.

Wait at Least Two Years

Generally, a lender will ignore an individual who has undergone a bankruptcy or a consumer proposal for a period of two years. After this time, however, you may be able to prove your ability to pay back a loan if you can meet these two conditions: 1) You have a history of steady income; and 2) You can show stable employment. During this time, you should be also enacting a debt repair plan in order to do what it takes to increase your loan worthiness. If you don’t wish to wait, there is always the possibility that you can put down a larger down payment, thus assuming greater financial risk. Many lenders will consider a 25% down payment as adequate to secure a new mortgage. Be aware that lenders may also require an additional lender/broker fee of up to 2%.

Ways to Improve Your Credit Rating

As soon as one week after you’ve been discharged from a bankruptcy or consumer proposal, you can apply for a secured credit card. By putting down $500 as a “deposit” or bond against this account, you can ostensibly begin managing credit again. There’s also a system whereby a bank will grant you a line of credit under the strict assumption that the loan is to be held for a specific period of time and for the specific purpose of improving your credit rating. Talk to a bankruptcy specialist to learn more about these two lesser-known tactics to increase your ability to buy a new home quicker.

Hidden Credit Rating Is a Bonus

It’s not widely publicized, but lenders look into more than just your credit report and your history of debt management. They also look at what are known as “hidden credit” indicators, such as your ability to pay your phone bill, your utility bills or your rent. Over the two years that you’re planning to enact a credit repair plan, be sure to be faithful in these areas so you can show a history of responsibility. As well, make sure you explain your situation to your new intended lender. The way you talk and carry yourself can have an impact on the way you are viewed as a risk.

It’s not impossible to secure a new mortgage after a major debt occurrence. But be aware that you’ll be under intense scrutiny for at least seven years before your record is completely expunged. Take charge now by accessing your credit report and credit score in order to determine where you stand at this very moment. Then begin a repair plan that has the specific goal of improving your credit within a certain period of time. With proper time and financial management, you’ll be able to get that new home.

Poll

  • How important is it to you for a debt consolidation company to offer financial education resources?
  • Takes your existing debt and try to settle with your creditors for a lower amount. If you pay off the settled amount, your debt will be considered paid in full.
  • Negotiates with your creditors on your behalf.
  • Fee based on a percentage of your total starting debt or a percentage of the debt they save you.
  • Most settlement companies have you create a separate "escrow" account where you will make monthly contributions over a certain amount of time to contribute to your settlement. Once there is a substantial amount of funds to show your creditors, the settlement company will try to negotiate a lower amount of debt.
  • Combines all your debts and creditors into one monthly payment.
  • Allows you to pay one monthly payment to the consolidation company, instead of multiple payments to different creditors.
  • You no longer owe your original creditors; instead you pay one monthly payment to your consolidation company.
  • Consolidation companies can help negotiate lower interest rates on your debts and help lower your total debt payment in the long run. A lower interest rate will lower the amount you owe in the end.
  • Allows you to consolidate all your different debts into one personal loan that can be paid off over time.
  • Can offer borrowers a lower interest rate with a longer payback term (compared to high-interest credit cards or medical bills). This will lower the amount of money required to pay off the loan over time.
  • Personal loan debt consolidation can be an effective way to raise your credit score quickly (within 3-6 months).
  • Borrowers can receive funds from their loan within only a few days.

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