How To Rebuild Credit After Bankruptcy To Qualify For Mortgage

How To Rebuild Credit After Bankruptcy To Qualify For Mortgage

We will cover how to rebuild credit after bankruptcy to qualify for a mortgage. Re-Establishing Credit After Bankruptcy To Qualify For Mortgage should be done the minute the Chapter 7 Bankruptcy discharge has been completed. Those who filed Chapter 13 Bankruptcy need to religiously make their monthly debt payments timely to their list of creditors.

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Mortgage Guidelines On Late Payments After Bankruptcy And/Or Foreclosure

Mortgage After Bankruptcy And Foreclosure Guidelines
Most lenders WILL NOT accept any borrowers who had late payments  after the following:

  • Chapter 7 Bankruptcy discharge
  • During Chapter 13 Repayment Period
  • After foreclosure
  • After deed in lieu of foreclosure
  • After a short sale

Are Late Payments After Bankruptcy And/Or Housing Event A Deal Killer In Qualifying For A Mortgage?

They classify borrowers who had late payments after bankruptcy and foreclosure as a second offender:

  • Most lenders will steer away from them
  • This holds true even though they get automated approval via the Automated Underwriting System
  • Late Payments after bankruptcy is not a HUD, VA, Fannie Mae, Freddie Mac, or USDA Guidelines
  • Many times the Automated Underwriting System will deny a borrower if the system recognizes late payments after bankruptcy and foreclosure
  • This includes short sale and deed in lieu of foreclosure

In this article, we will discuss and cover re-establishing credit after bankruptcy to qualify for a mortgage.

Re-Establishing Credit With Debts Excluded From Bankruptcy

That depends on what someone does after filing for bankruptcy. Petitioners that decide to exempt car and mortgage loans when filing bankruptcy. Filing Chapter 7 Bankruptcy can plummet credit scores by more than 100 points. However, timely payments on debts that are not discharged are made, credit scores will gradually go back up. It is a form of re-establishing credit after bankruptcy to qualify for a mortgage.

Using Secured Credit Cards To Boost Credit For Mortgage

The easiest and fastest way of re-establishing credit after bankruptcy to qualify for mortgage is to obtain three to five secured credit cards:

  • For a maximum score, increase potential make sure they are at least a $500 to $1,000 credit limit
  • Secured credit cards under $500 credit limits will do minimum impact in improving credit scores
  • There is a borrower that comes to mind where he got a 0% car loan after one year of filing Chapter 7 Bankruptcy
  • Had credit scores of over 700 FICO
  • This was because he was diligent in re-establishing credit right after the discharge date of his chapter 7
  • There are three different credit reporting agencies
  • Each of the three agencies has different models in calculating credit scores
  • One credit bureau may have a different credit score than the other two

Not Obtaining Credit After Chapter 7 Bankruptcy

Many consumers who file Chapter 7 Bankruptcy do not want anything to do with credit and buy everything cash. They believe that credit got them in trouble and do not want to do anything with credit. Unfortunately, by not obtaining new credit and having no credit reporting on their credit report, it ends up hurting them and their credit scores remain low.

Using Secured Credit Cards To Rebuild Credit After Bankruptcy

I highly recommend that consumers who got a bankruptcy discharge get a few secured credit cards. This holds true even though they do not use them. I do realize that it cost an annual maintenance fee plus that fee is worth its weight in gold. Each secured credit card can boost a consumer’s credit scores by at least 20 to 50 points. After 3 secured credit cards, the improvement of credit scores greatly reduces. Also, the consumer credit profiles will strengthen as it ages.

Age of Credit Tradeline Will Strengthen Your Credit Profile and Increase Scores

I run into many borrowers who have filed bankruptcy years ago but still have credit scores of under 580 FICO and have never had a collection account or charge-off account. They also have a perfect payment history with not a single late payment. However, their credit remains low because of no re-established credit after Chapter 7 Bankruptcy.

Purchasing A Vehicle While In Chapter 13 Bankruptcy

Filers of Chapter 13 Bankruptcy are eligible for an automobile purchase during their Chapter 13 Bankruptcy. Need to provide Chapter 13 Bankruptcy Trustee the type of vehicle they are buying, the terms and interest rates on the proposed automobile loan, the purchase price, the down payment, and other factors involved with the car purchase. This is so the Trustee can file a motion on behalf of the consumer that they are going to incur the auto debt with the U.S. Bankruptcy Courts. The courts will do a full review of the request. They will analyze the documents provided and then render a decision. Most of the time, the courts will approve an auto loan request. This holds true unless it is a luxury or exotic automobile.

Auto Loan Reports To Credit Bureaus

Auto Loan Reports To Credit Bureaus
Automobiles are a necessity for people to commute to work and do other domestic tasks such as shopping, driving children from and to school, etc.  If you pay off a vehicle while in a Chapter 13 Bankruptcy, the automobile lender needs to send you the title to the vehicle to you and the vehicle is completely yours.

Purchasing A Vehicle While In Chapter 7 Bankruptcy Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

For consumers in a Chapter 7 Bankruptcy, it is best recommended that they wait until their it has been discharged which is normally 90 days from the filing date, and then purchase a new car and obtain a car loan. There are many car finance companies that will finance car buyers just out of a Chapter 7 Bankruptcy but your interest rates will be high. The best recommendation I can give consumers is trying to re-establish credit and wait for credit to the season for at least six months. Then buy and finance a new car. If you need a car sooner, the auto lender may require buyers to have a co-signer

Qualifying And Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

Homebuyers can qualify for a mortgage after both Chapter 7 and Chapter 13 Bankruptcy.
Here are the qualification requirements to qualify for a mortgage after Chapter 7 Bankruptcy:

  • 2 year waiting period after the discharge date of Chapter 7
  • Re-established credit after Chapter 7 Bankruptcy
  • No late payments after Chapter 7 Bankruptcy
  • Minimum 580 FICO
  • Re-Establishing Credit After Bankruptcy To Qualify For Mortgage is strongly recommended
  • Loan Consultants has no overlays on FHA loans

VA And HUD Guidelines On Chapter 13 Bankruptcy

Here are the qualification requirements to qualify for a mortgage after Chapter 13 Bankruptcy on FHA and VA Loans:

  • Borrowers can qualify for an FHA Loan one year into a Chapter 13 Bankruptcy with the approval of the Trustee
  • It will be a manual underwrite
  • All manual underwrites require verification of rent
  • Re-Establishing Credit After Bankruptcy To Qualify For Mortgage is highly recommended
  • There is no waiting period after a Chapter 13 Bankruptcy discharged date
  • No late payments during and after Chapter 13 Bankruptcy

Qualifying For Government And Conventional Loans With Direct Lender With No Overlays

Many borrowers are told that they do not qualify for a VA or FHA Loan after a Chapter 13 Bankruptcy unless they meet a one to two-year waiting period.

  • This is absolutely not the case and not true
  • Under Guidelines of the Veterans Administration and HUD Guidelines, there is no waiting period after a discharge date of a Chapter 13 Repayment Plan
  • Each lender can have overlays on the waiting period after Chapter 13 Bankruptcy discharged date and do not have to honor VA or FHA Guidelines
  • Loan Consultants does not have any overlays on FHA, VA, USDA, and Conventional Loans

Prequalify for an FHA home loan now.

When Can I Start Rebuilding My Credit After Bankruptcy?

Your credit score reflects how you handle money over time, so credit rebuilding after bankruptcy should start the minute the bankruptcy has been discharged.
It may come as a surprise to learn that your credit score will fall more than 100 points after bankruptcy. This sudden drop is only temporary, though, and you can correct it by taking the right steps:

  1. Monitor and manage your credit history.
  2. Address errors on your credit report.
  3. Keep paying non-bankruptcy debts on time.
  4. Start building your new credit history.

Steps On How to Rebuild Credit After Bankruptcy

Once your bankruptcy has been discharged, your first step is to monitor and start managing your credit history. It’s important to get a copy of your credit report periodically throughout the year. That helps you spot identity theft and address errors quickly.
A smart way to stay on top of activity that affects your credit score is to get one credit report from each credit bureau every four months. You can get a free copy of your credit report from each of the three credit bureaus at AnnualCreditReport.com.
Your credit report will show:

  • your bankruptcy file and discharge date
  • zero balances for all credit tradelines that were included and discharged through bankruptcy.

What if an outstanding balance is still on your credit report?

There are times where creditors show an outstanding balance on your credit report after your bankruptcy. This practice is illegal and is easy to fix:

  • If any of your discharged debts are still being reported on your credit report, notify each of the credit bureaus of the problem immediately. Send a copy of your bankruptcy discharge to each credit bureau so they stop reporting any information on the bankruptcy list of creditors.

How to handle debts reaffirmed in bankruptcy

How to handle debts reaffirmed in bankruptcy
U.S. bankruptcy courts allow petitioners to reaffirm debts, excluding them from their bankruptcy. This means that certain secured debts such as a home or automobile can be excluded from bankruptcy. For example, a homeowner may want to keep their home and not include it in the bankruptcy. This is called reaffirming the home mortgage.

Debts That Cannot Be Discharged In Bankruptcy

Not all debts can be discharged in bankruptcy, however. Federal student loans and other federal debts are examples. They cannot be discharged in bankruptcy. Credit tradelines that are active, on the other hand, will impact consumer credit scores.
Above all, keep current on debts that are reaffirmed.
It’s important to keep paying non-bankruptcy debts on time. Late payments after bankruptcy can kill a deal when applying for a mortgage. Lenders consider late payments after bankruptcy discharge a second offense. More than 90% of lenders will not approve borrowers with late payments after bankruptcy.
Video: Secured Credit Cards to Re-Establish Credit to Qualify for Mortgage

Fastest and Easiest Way to Rebuild Credit After Bankruptcy – Secured Credit Cards

The fastest and easiest way to rebuild credit after bankruptcy is to use secured credit cards. A secured credit card works just like a regular credit card except that it requires a deposit from you. For example, if you want a $500 limit credit card, the secured credit card company will ask you to put up a $500 deposit. If you want a $1,000 credit limit, you need to make a $1,000 deposit, and so on. You use the card for transactions like you would with a traditional credit card.

Raising your credit score

The key to raising your credit score to the highest levels after bankruptcy is to get three secured credit cards with at least a $500 credit limit – and then make timely payments on them. Any credit limit under $500 is helpful, but it does not have the maximum potency like a $500 credit limit secured credit card.

Secured Credit Card Company Will Increase Limit With Timely Payment Seasoning

Once you have a great track record of paying your secured credit cards on time, the secured credit card may increase your credit limit without asking you for additional deposits. Each secured credit card can boost your credit score by 20 to 40 points. Your credit scores will improve as your secured credit card ages.

Making timely payments is critical

Secured credit cards work the same way as traditional, unsecured cards in the sense that they report to the credit bureaus. So if you do not pay the minimum amount due on your secured credit card, it will be reported as late to the credit bureaus. This will be devastating for your credit and credit scores, so be sure to pay all of your monthly payments on time religiously after your bankruptcy. Remember, mortgage lenders and other creditors consider late payers after bankruptcy second offenders. Most will not grant a mortgage if you have a history of late payments after bankruptcy.
Related: Mortgage with Late Payments After Bankruptcy and Foreclosure

When Can I Rebuild Credit After Bankruptcy With Traditional Credit?

Bankruptcy will drop credit scores by 100 or more points. It will be next to impossible to get unsecured credit right after bankruptcy. However, if you get three secured credit cards and make timely payments for at least six to 12 months, you may be eligible for traditional unsecured credit. For best results, make sure to keep the credit card balances low for maximum high credit scores.

Rebuild Credit After Bankruptcy by Increasing your credit limit

After six months to a year of timely payments, a secured credit card company may offer to increase the credit limit on your secured credit cards without asking for additional deposits. Normally, retail and gas credit cards are the best unsecured credit cards to get after bankruptcy. Consumers with a recent bankruptcy and little to no re-established credit can also get secured loans such as auto loans. However, interest rates may be higher for these loans.

Rebuild Credit After Bankruptcy With Secured Credit Cards

Many creditors do not have a problem granting new credit for consumers with recent bankruptcies. This is because they realize consumers won’t be able to file another bankruptcy for seven years after the discharge date of the last bankruptcy. Secured credit cards is the easiest and fastest way to rebuild credit after bankruptcy.

Mortgage Options After Bankruptcy

There are various options in qualifying for a mortgage after bankruptcy. Government and conventional loans require a mandatory waiting period after bankruptcy. However, borrowers can qualify for non-QM mortgages after bankruptcy with no mandatory waiting period requirements.

Waiting Period After Bankruptcy To Qualify For Mortgage

Here are the mandatory waiting periods and other requirements to qualify for a mortgage after bankruptcy:
FHA loans

  • FHA loans require a two-year waiting period after Chapter 7 bankruptcy.
  • Borrowers in Chapter 13 Bankruptcy repayment plan can qualify for an FHA loan after one year into the repayment plan with Trustee approval.
  • Chapter 13 Bankruptcy does not have to be discharged.
  • There is no waiting period after the Chapter 13 Bankruptcy discharged date.

VA loans

  • VA loans require a two-year waiting period after Chapter 7 bankruptcy.
  • Borrowers in Chapter 13 Bankruptcy repayment plan can qualify for a VA loan after one year into the repayment plan with Trustee approval.
  • Chapter 13 Bankruptcy does not have to be discharged.
  • There is no waiting period after the Chapter 13 Bankruptcy discharged date.

Fannie Mae And Freddie Mac Conventional Mortgage Guidelines

  • Conventional loans require a four-year waiting period after Chapter 7 bankruptcy.
  • There is a four-year waiting period after the Chapter 13 Bankruptcy dismissal date to qualify for conventional loans.
  • There is a two-year waiting period after the Chapter 13 Bankruptcy dismissal date to qualify for conventional loans.

Non-QM loans

  • There is no waiting period after bankruptcy to qualify for a mortgage with non-QM loans.
  • Homebuyers can qualify for non-QM loans one day out of bankruptcy and/or foreclosure with a 30% down payment.

The team at Loan Consultants has helped countless borrowers re-establish their credit after bankruptcy.
If you have been denied a home loan or have any questions about real estate or mortgage please contact Loan Consultants at 844-275-2007. Just give us a call or text and we will be happy to assist you.

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