Mortgage after bankruptcy

Lenders are understandably reluctant to loan money for a mortgage after bankruptcy. That’s why homeownership is a difficult goal to achieve for people who’ve filed for bankruptcy or been through a foreclosure in recent years. However, an impaired credit history doesn’t necessary mean all hope is lost. Here are seven ways to better your chances of eventually obtaining a home mortgage even if your past credit history is unimpressive.

1. Demonstrate good credit habits.

Lenders want to see a proven track-record of willingness and ability to repay borrowed sums as agreed. Get a secured credit card or make a purchase on account at a local retailer, then make the payments on time every month. Get a personal loan secured by an older automobile and, again, make the payments on time every month. Make sure you make other regular payments (e.g., utility bills or car insurance payments) on time.

2. Contest any errors on your credit reports.

There’s no reason to compound the problem of a troubled credit history by allowing errors to languish uncorrected. Order copies of your credit reports from the major credit reporting companies: Equifax, (800) 685-1111, Experian (formerly TRW), (800) 392-1122, and TransUnion, (800) 888-4213. Ask your creditors to correct any inaccuracies and add your own notations to clarify negative items. A credit counselor can help you with this process.

3. Pay back whatever you owe on your previous mortgage.

If your mortgage is upside-down (the outstanding balance exceeds the market value of the home), sell your home, sign an unsecured note for the difference and make a good faith effort to pay it off. Lenders generally don’t view a short payoff any more favorably than a foreclosure.

4. Educate yourself about mortgage lending, credit reports, credit scoring and the responsibilities of homeownership.

Get some advice from a REALTOR and a mortgage broker. Read some how-to books about personal financial management. Attend home- buying seminars and homeownership counseling sessions.

5. Be patient.

You might be able to qualify for a mortgage fairly soon after a bankruptcy, but you’ll be penalized with a high interest rate and unattractive terms. The more time that passes, the better your odds will become of obtaining a reasonable mortgage.

6. Get professional help and shop around for a willing lender.

Banks, savings and loans, mortgage banking companies, credit unions and other mortgage lenders follow different underwriting guidelines and lending rules and regulations. A sharp mortgage broker can help you figure out which lender is most likely to approve your loan application despite your impaired credit.

7. When you’re ready to buy a home, think small.

Lenders are more willing to risk smaller amounts of money. That means the less you want to borrow and the larger your own financial commitment (i.e., your downpayment) is, the more likely it will be that your loan application will be approved.