A record of bankruptcy or foreclosure will stay on your credit report for seven years.
This means, each time you try to apply for new credit, your prospective lender can see that negative remark in the Public Records section of your credit report.
Many lenders may be unwilling to extend credit for someone with a history of bankruptcy. However, you’ll be glad to know that there are lenders who are willing to extend loans for customers with bad credit or even bankruptcy in their report.
In this article, let’s discuss how you can increase your chance of getting approved for a home loan after bankruptcy.
Rebuilding Your Credit
Bankruptcy erases all your past credit history. Obviously, the only way you can start rebuilding your credit is to apply for a new account. This can be a challenge but with the right attitude, you should be able to find lenders who will give you a chance to start anew.
Before submitting your application to any lender, get a copy of your credit report from the three major credit bureaus (Equifax, TransUnion or Experian) to make sure that all the details in your report are accurate.
Look for a lending company that is less strict with credit requirements. Start rebuilding your credit by applying for a department store credit card or a gas credit card since these establishments do not perform a credit check. Use these cards with care and submit your payments religiously.
To get approved for a home loan, your goal is to reach a credit score of at least 600 points or more. Do not expect that you can regain good credit in an instant. You may need to wait for at least a year or two to reach your target credit score.
Saving for a Down Payment
As you are rebuilding your credit history, start saving for your loan’s down payment. You may need to submit at least 20% or more to make up for your low credit score. When you’re ready to apply for a home loan, don’t forget to spend time comparing rates and lenders.
If you have found the right lender, ask for your personal copy of the Good Faith Estimate of Costs days before the closing. This document should contain the exact rates and costs that you will be submitting to your lender on the day of closing.
Make sure that you have a lawyer to represent you during the closing. Your lawyer should help you in reviewing the contract to ensure the legality and fairness of the terms. As soon as your loan has been signed up, do your best to stay true to your repayment obligations to rebuild your credit history and avoid experiencing bankruptcy again.
