Using a Mortgage Broker Is Recommendation Number One for Those with a Recent BankruptcyIf you or a friend have recently gone through bankruptcy and are now thinking about getting a mortgage for a purchase or refinance, you have probably heard the routine answer that you must wait two to three years to get a mortgage loan. While this is a good rule of thumb, it isn't necessarily true.
Here are the facts about mortgages and bankruptcy:
1. It is possible to get a mortgage the day after you file for bankruptcy and/or the day after your final adjudication and dismissal in bankruptcy. It all depends on the circumstances and your financials. In order to even be considered for a mortgage so soon after filing or a final judgement, you would need to be able to show that the bankruptcy was due to extraordinary circumstances and unlikely to be repeated. The down payment would need to be much higher than normal, the income proof requirements would need to be air tight, and the interest rate would undoubtedly be higher than market.
2. The longer you wait to apply, the fewer the hurdles. Your credit score will play heavily into any mortgage process. Immediately after a bankruptcy, your credit score is likely to be less than 600. If you are able to get credit cards or car loans quickly, you can begin to build up your rating. As with mortgages, there are car loans available if you have good income and put a large percent down.
3. Some banks or other lenders will not accept an application earlier than two or three years after the final adjudication. However, there are plenty of lenders who will.
4. It may seem obvious, but you will need to pay very close attention to your credit rating. Any bounced checks, missed payments, late rents, or even evidence of building up massive amounts of credit will hurt your credit rating. Keep track of what is showing up on your credit reports. Immediately deal with any negatives.
5. Income verification will be scrutinized much more carefully. Many lenders want to see that you have been at the same employment for at least two years, even without a major credit issue like a bankruptcy. Be prepared to provide additional evidence of future income stability if you have changed jobs within two years of applying.
6. Various programs available to borrowers have their own rules which might impact your ability to get a loan, the interest rate, and other terms of the loan.
FHA and the VA have strict policies regarding Chapter 7 bankruptcy. You must wait two years from the date your Chapter 7 is discharged. If you are in a Chapter 13 bankruptcy the FHA will require12 months of Chapter 13 plan payments and the approval of the bankruptcy court for you to be approved. Both agencies will also want to see that the bankruptcy is unlikely to be repeated and/or due to circumstances largely outside the borrowers control.
7. In the current tight credit market, every aspect of your transaction will be scrutinized. Make sure you are not trying to buy too much house for your income, that you have a the down payment from approved sources, and that the property will appraise at levels needed to make the deal work.
8. When you have spotless credit, plenty of down payment, and documentation on income that is easily enough for qualifying, an argument could be made that direct borrowing from a bank may not be a lot different than using a mortgage broker. The right mortgage broker could still generally get you a better deal when considering all costs. Moreover, a quality broker is more like a consultant who will provide you with services well beyond merely finding you the best possible deal.
When you have a difficult loan, however, and a bankruptcy certainly qualifies as one of the most difficult issues to overcome, then it would be hard to argue that a direct relationship with a bank is the best road to getting a mortgage or getting a good deal. Mortgage brokers can search the market among various lenders to find out who has the stomach for bankrupt borrowers. A broker can also help you to assemble the documentation that is most likely to get the deal done.
9. You will likely need patience. That will likely be true at year two and three after you've received your judgement, but it will be a good emotional state to acquire if you are under those general requirements. We hope that you will give us a call to discuss the potential for getting you set up in a new mortgage. Call Bill at 310-424-8635
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Bill Rayman Home Mortgage12121 Wilshire Blvd
LA CA 90025