How Do I Obtain a Mortgage After Bankrupcty?

Rejected loan application

How do I obtain a mortgage after bankruptcy? This is a hard question to answer since it can be a challenge to obtain any credit after you have a bankruptcy on your record.

How Do I Obtain a Mortgage After Bankruptcy

The bankruptcy indicates to lenders that you are a high risk borrower and that you may have a history of not paying back your debts. Unfortunately, after the credit crisis and the real estate problems that occurred in 2008 and 2009, many mortgage lenders began to shy away from any high risk loans at all, including loans to borrowers with bad credit or bankruptcy. Still, rest assured, there is hope and are some answers to the question of, "How do I obtain a mortgage after bankruptcy?"

The key thing to know about answering the question is that you are not going to be able to obtain a mortgage with any sort of reasonable terms right after your bankruptcy. You are going to need to give it some time for your credit to improve and you are going to need to take steps to improve your credit in small ways before you can get a mortgage. Usually, this means getting a secured credit card and making a series of small charges that you pay on time every single month.

After a few months of doing this, you will eventually be able to show a good credit history again and the bankruptcy will move further into the distance and become less important. At that point, you can begin exploring options for a mortgage.

FHA Loans

One of your best options for obtaining a mortgage after you have declared bankruptcy is to consider FHA loans. These are loans that are backed by the government, although they aren't actually issued by the government. Because the government guarantees or secures the loans, private lenders are more willing to take risks that they otherwise would not on a borrower.

Usually, if your bankruptcy is at least two years old, you can obtain an FHA mortgage as long as you haven't had any other major credit problems or issues during that period of time. If you have some solid evidence to prove that the circumstances that led to your bankruptcy were unusual or beyond your control (i.e. that it was caused by an illness or layoff), then the lender may be even more receptive to giving you a mortgage a few years after your bankruptcy.

Becoming a Good Risk

The other way you can improve your chances of getting a mortgage post-bankruptcy is to make sure you have compensating factors that make you seem less risky. Usually, this means having a large down payment. The more money you put down, the less risk there is to the bank of loaning you the difference since there will be equity in case they have to foreclose. You may also want to consider buying a house that is less than what you could potentially afford.

Avoid Predatory Lenders

One of the most important things about trying to get a mortgage after you have declared bankruptcy is avoiding lenders that prey on those who have bad credit. Called predatory lenders, these subprime mortgage lenders may be willing to offer you a mortgage but at high rates and with high fees and closing costs that may make it nearly impossible for you to actually ever pay it back. You don't want to take one of these mortgages, as this will be setting yourself up to fail financially.

To avoid predatory lenders, make sure you understand exactly what all your costs and fees will be and how your loan is structured. If it is an adjustable rate loan, find out what the maximum interest rate and maximum payments would be. Always know what your interest rate is and what you are paying and, if you are having any concerns or issues, you may wish to speak with a reputable mortgage broker or even a lawyer who can look over the documents and help you to determine if the mortgage is appropriate or not.

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How Do I Obtain a Mortgage After Bankrupcty?