If you have a bankruptcy on your credit report, it can affect your ability to qualify for a mortgage. That’s because lenders want to make sure that you can handle the debt.
Fortunately, there are some ways to make this process easier. First, focus on rebuilding your credit. You can do this by paying down your debts and making your payments on time. Getting a home loan after bankruptcy can be a challenge, but it’s not impossible.
Conventional Loans
Whether you’re buying your first home or a vacation property, getting a conventional mortgage after bankruptcy is an option. They’re less restrictive than government-backed loans, and they require low down payments as well as favorable credit and debt-to-income ratios.
Conventional mortgages follow guidelines set by Fannie Mae and Freddie Mac, the two largest government-sponsored enterprises (GSEs) that buy mortgages from lenders and sell them to investors. They have a fixed- or adjustable interest rate, and can be used for purchase, refinance, or construction.
In general, conventional loans are aimed at middle- to high-income people. However, if your debt-to-income (DTI) ratio is too high or your credit score too low, you may be turned down.
Before applying for a conventional mortgage, you should repair your credit, pay down your debts, and increase your income. You should also save up for a down payment as large as you can afford. This will help you qualify for a good interest rate and reduce your monthly mortgage payments. After being discharged from bankruptcy, a home loan was able to be secured through a specialist lender by proving income and saving for a larger down payment, despite the challenges associated with obtaining a discharged bankrupt home loan.
FHA Loans
If you’ve recently filed bankruptcy, it can be difficult to know where to turn for a mortgage. But you don’t have to give up hope.
In fact, FHA loans are an option for many homebuyers. They offer lower credit score minimums and qualifying requirements than conventional loans do.
However, lenders still require borrowers to meet the same debt-to-income ratios and other guidelines as they would for anyone who is buying a home with a conventional loan.
The key to getting a mortgage after bankruptcy is re-establishing your credit. This requires making on-time payments and reducing your debt to income ratio.
In addition, the FHA has special rules that allow borrowers who have been in bankruptcy for at least two years to qualify for a new mortgage. This makes FHA loans a viable option for a lot of people who have been through bankruptcy.
USDA Loans
Unlike other types of loans, USDA mortgages are government-backed and geared towards low-income homebuyers. They also offer zero down payment options and lenient credit requirements.
The United States Department of Agriculture’s rural development program guarantees these mortgages to private lenders who then provide them to borrowers. These loans are a great way for lower-income homebuyers in rural areas to obtain their dream homes.
If you’re considering a home purchase after bankruptcy, a USDA loan may be your best option. These mortgages are more lenient with regard to credit score standards than conventional loans, and they generally have a shorter waiting period after bankruptcy.
To qualify for a USDA loan, you’ll need to live in an eligible rural area and meet income limits. You can find these limits for each county and household size using the property eligibility tool on the USDA website.
Non-Qualified Mortgages
If you can demonstrate that extenuating circumstances prevented you from qualifying for a conventional mortgage, you might be able to get a Non-Qualified Mortgage (NQM). These loans offer flexibility in lending requirements and are often used by self-employed borrowers, rental property investors and others who don’t qualify for a traditional loan.
