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Getting a Mortgage After Bankruptcy

It is unfortunate that many bankruptcy attorneys do not give their clients
more direction with regard to restoring themselves after their bankruptcy.
There are some simple steps that anyone who files a bankruptcy needs to take
in order to restore themselves financially.

Using these steps below, you can restore your credit and prepare yourself to
become a homeowner.

1. Get a copy of your credit report.
Many times (most times) the credit accounts that are absolved with your
bankruptcy are not removed from your credit report immediately. You can
contact each credit reporting agency (Equifax, Experian, and TransUnion)
directly to get a copy.

2. Have derogatory credit items that were charged off in your bankruptcy
removed from your credit report.
You will need to send a copy (not the original) of your bankruptcy discharge
papers to all 3 of the credit bureaus asking them to remove these
inaccuracies. This process can be done by mail for free, or online for a
small charge by the agencies.

3. Pay all of your bills on time.
Bankruptcy is a means to financial recovery. It is intended to allow you to
“start over” financially. After your bankruptcy, you need to make sure that
all of your bills are paid on time. If you are having trouble with an
upcoming bill, DO NOT IGNORE IT. This is where most people go wrong. Call
your creditors before they call you and let them know what your challenges
are. If you can’t get a reasonable rep on the line, ask for a supervisor,
but again, do this as early as possible, not the day the bill is due or
after it is late. If you are having trouble with your bills, you may need to
solicit some help.

4. Have a strong documented rental history.
This is critical as it is most likely the largest monthly expense that you
have. Underwriters (the people that actually sign off on your loan’s
approval) will look very hard at how you have paid your rent as they are
going to replace it with a mortgage payment of equal or greater size. It is
very important to be able to document your rent payment history very
specifically. If you rent from an apartment community, then all the bank
will have to do is request a Verification of Rent (a.k.a. VOR). If you have
a private landlord, then the BEST way to document this is with cancelled
checks for the last 12 months rent. Banks can do VOR’s for private
landlords, but rarely do because they feel that a landlord may have a
relationship with the borrower and say what the bank wants to hear to help
them get a loan. If you pay with cash or money orders, please stop doing
this immediately and start paying with checks. Simply put, this is hurting
you because by filing a bankruptcy you have already shown some financial
instability. Paying your rent with cash or money order shows further
financial instability and will not give you the positive rent history that
the underwriter is looking for to give them the confidence in approving your
loan.

5. Apply for a secured credit card.
A secured credit card allows you to make a deposit into an account to secure
a credit card and then borrow against it to establish a new positive payment
history. As time progresses, the bank may increase your credit line to an
amount greater than your deposit, and then eventually return your deposit to
you. (They will also often pay you interest on your deposit.) Be very
cautious of companies that charge excessive fees or interest rates for their
secured cards.

6. Prepare “non traditional” trade references
These are accounts that you pay on such as cell phones, car insurance, and
store accounts which can be used to document a positive payment history, but
would not be traditionally reported to a credit bureau. Ideally, if you can
provide 3 of these accounts with a 12-month payment history, this will help
your loan officer in convincing the banks underwriter that you are a good
credit risk. The best way to document this is with a letter from the company
stating that you have had a positive payment history with them for the past
12 months. Alternatively, you can provide 12 months of cancelled checks
showing 12 months of timely payments.

7. Resist the urge (or encouragement) to buy a car.
Some may tell you that this is the best way to rebuild your credit. The
problem is that your interest rate will be so high, that your payments will
make your debt ratios higher than normal, making it harder to qualify for a
mortgage. Do you remember the figure of 45-50% of your monthly income that
the bank will allow you to use towards your debts? This will quickly be
absorbed by a car payment.

Only buy a car if
a) you NEED (not want) a car, and
b) you have the income to cover the car payment, any of your current debts,
and your proposed new car payment.

We have seen SEVERAL people that have cars rather than homes because they
went out and bought a car that they could not sell and their debt ratios
were too high to qualify for a mortgage. It would be a shame to have a nice
car (that depreciates daily), as opposed to a more humble car along with a
mortgage on a home that gives you a tax break, and increases in value over
time.

I hope this is helpful and helps get you on your way to financial recovery
and on to finding the home of your dreams.

About the Author

Anthony Kirlew is founder of BankruptcyLoans.info (www.bankruptcyloans.info), a company specialising in after bankruptcy
mortgage services and the author of The Bankruptcy Mortgage Book
(www.thebankruptcymortgagebook.com) . He has been a featured mortgage columnist on several consumer and finance Web sites including All Experts and SideRoad. Anthony can be reached at www.AnthonyKirlew.com