Many people have debts that they are unable to repay. Sometimes, this is a result of overspending. In many cases, it occurs because of a job loss, an illness or injury that makes it impossible to work, or a divorce. When people are buried in debt, bankruptcy may seem like the only viable solution.
Bankruptcy does not need to cloud your finances forever. With some hard work and patience, you may even be able to realize your dream of owning a home. Here are some strategies to improve your situation and qualify for a mortgage.
Steps to Take
The first thing you need to do is to have the bankruptcy discharged. If you are still in the process of filing for bankruptcy or working with a credit counselor, you will not be able to qualify for a mortgage.
After your bankruptcy has been discharged, request copies of your credit report from the three main credit agencies: TransUnion, Equifax and Experian. Mistakes on your credit report can make it difficult to obtain a mortgage. If you find any, write to the credit agencies, provide documentation and ask them to correct the information.
You will need to rebuild your credit to prove to lenders that you are able to manage money responsibly. One way to do that is to apply for a secured credit card. The issuer will provide you with a line of credit limited to the amount of money you have in an account with the bank. Avoid making purchases that will use too much of your available credit line. To take it up a notch, make payments on time and pay as much as possible to keep your debt low, avoid high interest payments and rebuild your credit score.
You can also improve your credit score by making payments on an installment loan. This is a loan with monthly payments, such as for a vehicle, student or personal loan. Making payments on time every month can show lenders that you are a low risk borrower.
Since mortgage lenders look for borrowers who are employed and stable, stay at your job for as long as possible to improve your chances of qualifying for a mortgage.
It is generally a good idea to wait at least two years after your bankruptcy is discharged before applying for a mortgage. While you might be able to obtain a loan sooner, it would likely be at a higher interest rate, which would result in high monthly payments. While you are waiting to apply for a mortgage, save as much money possible to put toward a down payment and closing costs.
Working Toward a Brighter Future
Declaring bankruptcy is a setback, but it does not have to prevent your dream of owning a home from becoming a reality. Take some time to rebuild your credit, save money and prove to lenders that you can be trusted to repay a loan. With time and dedication, you can be on the road to obtaining a mortgage and living in the home of your dreams.
Published with permission from RISMedia.