Seeking a mortgage after bankruptcy: What you need to know

By On Behalf of Giddens & Gatton Law, P.C. | August 20, 2019

For many Americans, buying a house is a huge milestone in their adult lives. It is a milestone of their financial independence. A home is without a doubt one of the (if not THE) most expensive assets that someone will own in their lifetime.

This is why people worry about their house when they deal with debt and other financial struggles.

When individuals file bankruptcy, they often have various options to protect their home and prevent foreclosure. But what about after bankruptcy? Will they be able to obtain another mortgage? How do they approach the process?

These worries are understandable. However, it is possible for individuals to obtain a mortgage after bankruptcy, but they may face some challenges.

Here are some tips that individuals seeking a mortgage after receiving a bankruptcy discharge should consider:

1. Concentrate on building up your credit again

Mortgage lenders consider several factors when individuals apply, including but not limited to:

  • Credit score and history
  • Work history and income
  • The ratio of debt to income

That is why it is critical for individuals to focus on managing their money and improving their credit after receiving their discharge.

There are several ways New Mexicans can improve their credit score after bankruptcy, including, but not limited to:

  • Obtaining a secured credit card
  • Monitoring spending on the credit card carefully
  • Checking their credit report for errors
  • Adhering to a realistic budget

2. Remember, it may take some time

Although individuals have every right to apply for a mortgage after a bankruptcy discharge, it is often beneficial for them to wait a period before doing so.

The average waiting period is around two years. However, this time period depends on each individual’s situation. Waiting to apply for a mortgage can be frustrating, but it can help individuals:

  • Better protect their finances
  • Obtain better interest rates and offers

3. Consider getting pre-qualified or pre-approved

Getting pre-approved for a mortgage does not actually guarantee that an individual will obtain one.

But it can demonstrate to lenders that individuals are financially responsible, able to buy a house and repay the loan.

Lenders will likely ask about bankruptcy, but it is nothing to worry about

Since lenders review an individual’s financial, they will usually ask about the details of the bankruptcy. It can be helpful to create a simple but honest summary of the situation (pre-bankruptcy and post-bankruptcy).

Remember, bankruptcy is nothing to be ashamed of. It is a legal process that allows individuals to take charge of their debt and obtain a fresh start. Understanding the potential challenges to obtain a mortgage before filing bankruptcy can help individuals plan for their future after receiving their discharge.

Posted in Chapter 7 Bankruptcy