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By Simon Volkov
Qualifying for a mortgage after bankruptcy requires borrowers to engage in credit repair strategies to improve FICO scores. Those who resolve credit issues might qualify for a home loan within 2 or 3 years if they fulfill Chapter 13 payment requirements. Otherwise, it could take as long as 10 years to qualify for another loan.
Obtaining mortgage after bankruptcy can be challenging because borrowers have been deemed as being untrustworthy. Taking control of personal finances and developing a positive payment history is essential for obtaining loan approval.
Debtors who have entered into Chapter 13 bankruptcy are required to establish a payment plan according to guidelines set forth in the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Petitioners are prohibited from incurring new debts while the payment plan is in place.
Oftentimes, Chapter 13 payments extend for up to 5 years. If debtors do not comply with their plan the bankruptcy court can dismiss the petition and cause the debtor to fail out of bankruptcy. If this occurs, debtors significantly reduce chances of obtaining a mortgage loan.
People often file mortgage bankruptcy to stop foreclosure. Those who fail out of bankruptcy almost always lose their home. Failing out of bankruptcy and losing property to foreclosure will prevent borrowers from qualifying for a mortgage for at least five years.
When debtors have the mark of personal bankruptcy and foreclosure they might be able to buy a house using creative financing strategies such as seller carry back mortgages or lease purchase option agreements.
Seller carry back mortgages are offered through private sellers or real estate investors. This option lets bad credit buyers enter into a contract while undergoing credit repair strategies. Sellers act as the mortgage financier for all or part of the financing. When partial financing is offered buyers must obtain bank financing or borrow funds from a hard money lender, friends, or relatives.
Seller carry back contracts typically last between 1 and 3 years. Buyers must strive to improve credit scores to qualify for bank financing at the end of the contract. Otherwise, they could lose the property due to default of contract terms.
Lease purchase option agreements allow buyers to reside in a home as a tenant. However, a portion of rent money is contributed toward the eventual purchase of the home. This type of contract typically extends for 1 to 2 years.
If debtors are unable to locate properties for sale using creative financing they may have to rent a home until their credit allows them to qualify for financing. Debtors can boost credit scores by paying all bills on time and in full each month. They should strive to be consistent with rent payments, especially when landlords report payments to credit bureaus.
Rent payments should be paid with a personal check. Tenants should retain records to show the date and amount paid. Those without a checking account should pay with money orders and obtain detailed receipts from their landlord that includes payment dates and amounts.
Mortgage lenders often require borrowers to have a checking account when applying for a mortgage. If borrowers do not qualify for bank accounts due to outstanding checks or bank fees they must become proactive about clearing debts.
The main reporting system used by mortgage financiers is Chex Systems, Inc. Individuals who end up on Chex Systems blacklist will find it next to impossible to qualify for a mortgage loan. Debtors can take steps to clear derogatory information by ordering a copy of their Chex Systems report from ConsumerDebit.com.
Debtors should also obtain current credit reports from each of the three major credit bureaus. These include: Experian, Trans Union, and Equifax. Creditors usually do not report to all three bureaus, so credit reports oftentimes vary.
Every U.S. citizen is entitled to one free credit report from each bureau on an annual basis. Reports can be ordered from AnnualCreditReport.com. This agency was created by the aforementioned credit bureaus and adheres to guidelines set forth by the Fair and Accurate Credit Transaction Act (FACT Act).
It is not uncommon for discharged bankruptcy debts to be incorrectly reported. Erroneous information negatively impacts credit scores so it is important to review reports and be proactive about having information corrected.
It can take up to nine months for credit bureaus to remove erroneous information. Debtors should order credit reports immediately after bankruptcy. Debtors can obtain sample creditor letters and instructions for disputing erroneous information via the Federal Trade Commission website at FTC.gov.
The process to qualify for mortgage after bankruptcy can be cumbersome, but is well worth the effort. Once credit reports are cleared it is imperative for debtors to keep personal finances under control to prevent future problems.
About the Author: Learn more strategies to qualify for
mortgage after bankruptcy
from real estate investor, Simon Volkov. His website offers an extensive real estate article library covering topics of personal bankruptcy, creative financing strategies, and buying houses with bad credit at
SimonVolkov.com
.
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