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Immediate Mortgage Application: Chapter 13 and Chapter 7 Bankruptcy

While immediate applications for mortgage loans can be filed with both types of bankruptcies, there are some differences between the two. Chapter 7 filers must wait until the debt has been completely discharged to apply for a loan. Conversely, those who filed as Chapter 13 can apply immediately because they have been put on a payment plan. Additionally, those on a Chapter 13 payment plan have the ability to pay off their bankruptcy debts using the equity from their new home.

Waiting Period

After filing bankruptcy, most banks will require a 3 year waiting period before applicants can reapply for a mortgage loan, especially if a previous home mortgage was included in the bankruptcy. Fortunately, applicants will find that the application process is easy. Additionally, 100% financing is available after this waiting period. While it is possible to reapply at some banks after 2 years, the bank will charge significantly higher interest rates and may require a down payment for this early readmission, but brokers may offer more flexible options.

Using the Waiting Period to Rebuild Credit

Although lenders require a two-year waiting period, borrowers should not sit idly during that time. Saving money, making timely payments on a secured credit card, and finding a job can all greatly improve the chances of getting a mortgage after bankruptcy. Two years is ample time to prove that the ground work has been laid for a successful financial future.

Start Saving

Any cash that a borrower has lying around should be put into a savings account. The more a person saves, the more they can prove to the bank that they have a strong dedication to finance. Banks and mortgage loan providers love to see an applicant with the ability to put aside money for the future.
Savings accounts can be opened at no cost online or through a local banking branch. Those looking to open savings accounts should compare interest rates and balance minimums to find a solution that works for the current financial situation.

Maintain the Same Job

The impulse to search for a bigger and better job after bankruptcy can be extremely tempting. Sometimes it can feel like the only way to avoid a repeat situation is to start making more money as quickly as possible. However, those seeking to get a mortgage should stay within their current job position. Creditors want to know that an applicant has a stable source of income and holding down a job demonstrates responsibility. Retaining a job for the entire two to three year wait period is most advantageous. At the very least, potential borrowers should maintain the same position for one year, but exceptions may be made by some brokers.

Avoid Large Purchases

Potential borrowers should steer clear of large purchases such as cars or recreational vehicles. The interest rates on the payments will increase debt ratio, making an applicant look less financially secure. A vehicle should only be purchased if it is absolutely necessary and if there is enough cash to cover car payments, outstanding debt payments, and the potential mortgage payment. Even then, borrowers should focus on buying a used vehicle with a solid operating history. Used cars have significantly lower monthly installments and can be paid off in a few short years by diligent savers.

Getting a mortgage after bankruptcy is possible by demonstrating that you are stable and secure. Have patience and focus on building savings and the mortgage will easily follow.

Note from the Coach: If you have any mortgage questions or are interested in possibly refinancing your current mortgage, you can contact Tanya at:

Tanya Spurgeon
Sr. Mortgage Consultant
Crown Mark Mortgage
317-341-2544 (direct)

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