Mortgage Loans After Bankruptcy

Bankruptcy is an unpleasant ordeal, and is not made any better by the long term consequences of it.  Bankruptcies undertaken by individuals invariably end in them destroying their credit scores and therefore making it very difficult for them to go on to get credit cards or mortgage loans after bankruptcy.  There aren't many ways around this little caveat, because the essential purpose of a bankruptcy is to declare to creditors that you can not pay them back for the money you owe them.  In doing so, you're indicating that you might potentially do the same thing to future creditors, making you a rather unappealing person to loan to in the long run.  But there are a few loopholes that can get you back on your feet quicker than usual.

The first point is that your credit record is going to carry your bankruptcy on it for at most 10 years after the bankruptcy, meaning that for this period of time, all of your creditors will know about it ahead of time and will likely adjust your interest prices upward to deal with that.

The other issue is that filing for bankruptcy carries the proviso that you can't do it again for another 7 years by law.  If you declare multiple bankruptcies, first off, you should know that your credit is probably screwed for the entire 10 years that it can remain on your credit score.  No one wants to lend to someone who has gone bankrupt multiple times.

However, for that 7 year window of time, you're actually an appealing investment to your creditors for a number of reasons.  First off, they know that you have very little or no debt, so for that reason, they can lend to you and be relatively certain that they'll will be the main priority for you to pay back.  Second, you can't file for bankruptcy for seven years.  If you can't file for seven years, then you can't dodge their bills.  And third, despite these perks to lending to you, they can still jack up the interest rate because you've got a bankruptcy on your record.

So the key to all of this is that if you want to get a mortgage loan, you have to build up credit.  To build up credit, simply apply for a major credit card.  Usually, the credit card companies will try and give you a secured credit card, which is typically reserved for those with credit problems.  Take the secured card, even if it's a bit of a blow to your pride, and start buying with it. You have to treat it like cash though.  Look at your credit card the same way you look at paying your rent.  If you don't pay your rent, you'll be kicked out of the house.  Look at credit cards with the same level of severity.  Always always always pay your bills on time, and only buy things that you can afford right here and now.  It helps to think of the credit card as a debit card.

As you build up your credit, you'll start getting better deals on loans, mortgages, and so on.  Chances are, this process is going to take a number of years.  If you only use the card for what you need, you can slowly build it back up, and if you show that the bankruptcy was an aberration to an otherwise impeccable record, you can get mortgage loans after bankruptcy for high but reasonable prices.  One of the keys to this is that the longer you wait to get the mortgage loans after bankruptcy, the cheaper they will be.  In fact, the most economically sensible approach is to wait the full 10 years until the bankruptcy is off of your record, and THEN try and buy a house.  If you do it any sooner, your bankruptcy will still effect your rate, whereas if you spend 10 years building up your credit and then emerge with a clean slate, you're going to be an extremely appealing investment for a loan company, regardless of your past.

Some people can't or don't want to wait this long, however, and that's understandable.  After 3 or 4 years past the bankruptcy, if you have been building up your credit, you might be able to get a full loan.  If your credit still isn't great, you're going to either only get a partial loan or get some pretty high rates.  An option to look into when applying for the mortgage is the possibility of refinancing your mortgage in the future.  If you do this at a time your credit is better, you'll be able to adjust the mortgage interest rate so that it isn't totally painful to pay each month.