In this blog, we will cover and discuss how to rebuild your credit after bankruptcy to buy a house. The team at Gustan Cho Associates are experts in helping homebuyers after bankruptcy qualify for a mortgage. Gustan Cho Associates have helped countless borrowers after bankruptcy qualify for mortgages. We can help people after bankruptcy on how to rebuild your credit after bankruptcy. The team at Gustan Cho Associates can help people on how to rebuild your credit after bankruptcy to buy a house. The team at GCA Mortgage has helped countless of borrowers reach over 700 FICO in less than one year after the Chapter 7 Bankruptcy discharged date. There are steps on how to rebuild your credit after bankruptcy to buy a house.

USEFUL LINK: Steps on How To Rebuild Your Credit After Bankruptcy

Best Mortgage Lenders For Mortgage Approval After Bankruptcy

Best Mortgage Lenders For Mortgage Approval After Bankruptcy

Not all mortgage companies have the same expertise in helping borrowers after bankruptcy. The team at Gustan Cho Associates are experts in bad credit home loans. We are experts in helping homebuyers after bankruptcy and bad credit. Government and conventional loans have a waiting period after bankruptcy requirements to qualify for a mortgage. FHA, VA, USDA, Fannie Mae, and Freddie Mac have their own waiting period guidelines which we will cover later in this blog. The waiting period requirements are different depending on the kind of bankruptcy and the loan program.

How To Rebuild Credit After Bankruptcy For Non-Prime Mortgage Loan Approval

Rebuilding and re-establishing credit after bankruptcy will get you a mortgage approval at the best mortgage rates. Having a bankruptcy is not the end of the world. People can definitely qualify for a mortgage after bankruptcy. However, there is a minimum waiting period required to qualify for a mortgage after bankruptcy on government and conventional loans. Gustan Cho Associates offers non-QM mortgages one day out of bankruptcy with a 30% down payment.

USEFUL LINK: How To Qualify for Non-QM Mortgages After Bankruptcy With No Waiting Period

FHA Loan Requirements After Bankruptcy

FHA loans have the most lenient guidelines after bankruptcy. Borrowers can qualify for an FHA after bankruptcy via automated underwriting system approval and/or manual underwriting. There are two types of bankruptcies: Chapter 7 Bankruptcy and Chapter 13 Bankruptcy. Waiting period requirements are different between the two kinds of bankruptcies. Re-establishing credit after bankruptcy should be ongoing even closing on the home loan. Maximize your credit score by re-establishing credit after bankruptcy so you can refinance your home loan with the lowest possible rate.

USEFUL Link: FHA Guidelines After Bankruptcy For Mortgage Loan Approval

VA Loan Requirements After Bankruptcy

VA loans are very similar to mortgage approval after bankruptcy. Borrowers can qualify for VA loans after Chapter 7 Bankruptcy with an approve/eligible per automated underwriting system and/or manual underwriting. Just meeting the waiting period requirements does not guarantee mortgage approval. Lenders want to see Re-Establishing Credit after bankruptcy. 

VA Loans With Bad Credit Mortgage Guidelines

The Veterans Administration does not have a minimum credit score requirement. VA does not have a maximum debt to income ratio cap. Mortgage rates are based on the borrower’s credit scores. This is why re-establishing credit after bankruptcy should be an ongoing process to maximze credit scores to refinance at the lowest possible rate.

How Long Does It Take To Increase FICO to Qualify For a Mortgage

Re-establishing credit  after bankruptcy is an ongoing process. Even when your credit scores surpass the 700 FICO mark, you should monitor your credit report. As your credit tradelines age, the stronger you credit profile is. Borrowers should start rebuilding and re-establishing credit after bankruptcy as soon as their bankruptcy has been discharged. The team at Gustan Cho Associates has helped countless borrowers get credit scores to over 700 FICO in less than one year after the bankruptcy discharge date. It is recommend borrowers keep on re-establishing credit after bankruptcy to boost credit scores. A higher credit score means lower rates.

Steps for Re-Establishing Credit After Bankruptcy For Mortgage Approval

Many folks who have filed bankruptcy or went through a prior foreclosure think that their days of having good credit and getting credit is over: That is absolutely not the case. Thousands of hard-working Americans file bankruptcy due to circumstances beyond their control. A loss of a job, even for a few months, can turn the financial situation upside down and cause tremendous stress.

Qualifying For a Mortgage With Gaps of Employment

Many of those who lost their jobs and businesses often times cannot get high-paying jobs and settle for jobs where they are overqualified and underpaid for their skills. Being underemployed forces many people not to be able to meet their monthly debt obligations. Many are forced into foreclosure and/or bankruptcy. Many times to both foreclosure and bankruptcy.

Best Lenders For Mortgage Approval After Bankruptcy

Bankruptcy will plummet a person’s credit scores by 150 points or more temporarily. However, there is light at the end of the tunnel. A person’s credit scores will naturally go back up as bankruptcy. A person who filed for bankruptcy can get credit again. There are mortgage lenders that can help borrowers get approved for a home mortgage after bankruptcy. Gustan Cho Associates is one of the best mortgage lenders with no lender overlays who are expert in helping homebuyers after bankruptcy. 

Why Do People Get Denied For a Mortgage After Bankruptcy?

Homebuyers will be able to qualify for a home purchase. There are mandatory waiting periods to be able to qualify again for a residential mortgage loan after someone has filed bankruptcy or those who had a prior foreclosure. Just passing the mandatory waiting period does not automatically qualify a home buyer for home loans. Lenders want to see a mortgage applicant have re-established credit after the bankruptcy and/or foreclosure.

How Much Will My FICO Increase After I Start Re-Establishing Credit After Bankruptcy To Qualify For a Mortgage?

Boosting  your credit scores is not an overnight process. It takes patience, time and work re-establishing credit after bankruptcy. The great news is you wlll start seeing results 90 days from the day you start re-establishing credit after bankruptcy. Re-establishing credit after bankruptcy should be initiated as soon as possible.

Getting Automated Underwriting System Approval For a Mortgage After Bankruptcy

Just waiting out the waiting period may not get you an automated underwriting system approval. The AUS and lenders want to see re-established credit after bankruptcy. Reasons for mortgage denial after bankruptcy is due to late payments after bankruptcy. Late payments after denial are not good. One or two late payments after bankruptcy are not always a deal killer. But multiple consistent late payments are a matter of concern.

Re-Establishing Credit After Bankruptcy With Secured Credit Cards

Re-Establishing Credit After Bankruptcy With Secured Credit Cards

The best way to re-establishing credit after bankruptcy and foreclosure is by getting several secured credit cards. Secured credit cards are the best tools for re-establishing credit after bankruptcy. Each secured credit card can help boost credit scores by 20 or more points after bankruptcy and foreclosure.

How Many Number of Secured Credit Cards Will Expedite Re-Establishing Credit After Bankruptcy and Boost FICO

Consumers should try to get between 3 to 5 secured credit cards after bankruptcy discharge and/or foreclosure. Not only are the secured credit cards going to help credit scores. But it will develop credit history and most lenders will want to see a minimum of three established credit tradelines after a bankruptcy and/or housing event. Secured credit cards will open doors to unsecured credit cards and other credit for the future. Also, the credit limit on unsecured credit cards will most likely get a credit limit boost without having to put in any additional deposit.

How To Start Re-Establishing Credit After Bankruptcy For Mortgage Approval

Many folks who just filed bankruptcy and had their bankruptcy discharged and those who just went through a foreclosure often are fed up with credit. They do not want to have any more credit and live on a cash-only basis. This is very understandable for those who had too much credit. Credit is what got them financial problems. But not having credit will actually hurt borrowers when it comes to qualifying for a mortgage after a waiting period after bankruptcy and foreclosure have elapsed. Lenders want to see at least three to five established credit tradelines.

FHA Loan Approval With No Credit Tradelines

Most lenders require at least three credit tradelines seasoned for two years. HUD, the parent of FHA, does not require credit tradelines for an FHA loan approval. Borrowers with no credit tradelines need to be downgraded to manual underwriting. Manual underwriting requires timely payments in the past 24 months and verification of rent. Many borrowers with no credit tradelines. You can qualify for FHA loans with no credit tradelines and no credit scores via manual underwrite. One of the most FAQs at Gustan Cho Associates we get asked is what are credit tradelines? Credit tradelines are established credit accounts such as the following:

  • credit card accounts
  • department store accounts
  • auto loans
  • student loans
  • mortgage loans
  • other installment or revolving credit accounts that have been seasoned for at least 12 months

Why Are Credit Tradelines For FHA Loan Approval Required By Mortgage Companies?

FHA and Fannie Mae do not require a certain amount of credit tradelines. But each individual lender may have their own overlays with regards to having additional credit tradelines. For buyers intending on buying a home in the near future after a prior bankruptcy or had a prior foreclosure, just passing the waiting period is not sufficient to qualify. Late payments after bankruptcy and/or foreclosure can be automatic disqualifiers by many lenders.

FHA Loans With Bad Credit Mortgage Approval

Borrowers need to start re-establishing credit by getting new credit and the time to start is immediate. Remember that borrowers are not getting secured credit cards to use it. But are getting it as a tool for boosting up credit and re-establishing credit and developing a credit history. Good credit and established credit are always good.

How To Boost Your Credit With Instant Credit For Best Rates

Credit Tradelines Overlays By Lenders

Mortgage lenders based your mortgage rates on your credit scores. The team at Gustan Cho Associates has some quick fixes on boosting your credit. One of our experienced associates at Gustan Cho Associates can help you boost your credit to get you the best mortgage rates. Good credit means lower interest rates:

  • Good credit is lower rates on auto loans, mortgage loans, and credit cards
  • Insurance premiums will be much lower with good credit
  • Insurance companies check credit reports and credit scores when evaluating risk factor
  • Good credit is also important when it comes to bonding license and/or business
  • Bond companies issue lower rates for those who have good credit versus bad credit
  • Good credit also is important for employment
  • Many employers check prospect’s credit reports and credit scores as part of their hiring and promotional process

Employers’ mentality is that those with good credit are financially responsible.

How Underwriters Look At Credit History During The Mortgage Process

When a creditor or a mortgage underwriter reviews credit, they will not just check credit scores but will also review credit history. As mentioned earlier, for those who just filed for bankruptcy or recently had a foreclosure, credit scores will definitely get a three-digit credit drop. Creditors and mortgage loan underwriters will review overall credit history:

  • the borrower had great credit for many years
  • Ten they will notice the sudden drop of credit scores during bankruptcy and/or foreclosure period
  • They will see re-established credit

Underwriters will then notice credit scores back on the upswing and good payment history.

Reasons For Bad Credit By Mortgage Borrowers

These types of patterns are understandable:

  • Mortgage underwriters reviewing credit reports will see that they are a financially responsible person because they see they had great credit for the majority of the time and had an extenuating circumstance where credit dropped
  • Mortgage underwriters will require a letter of explanation on what caused bankruptcy and/or foreclosure
  • Borrowers can write a detailed letter of explanation on the cause of bankruptcy and/or foreclosure

It can be for the following reasons:

  • loss of job
  • loss of business
  • divorce
  • medical reasons
  • death in the family
  • other extenuating circumstances

Re-establishing credit is of utmost importance and the sooner you re-establish credit, the better it will be.

How To Rebuilt Credit After Bankruptcy To Get Ready For Mortgage

The are many folks who recently filed bankruptcy who feel that hiring a credit repair company to fix their credit is the most important priority in re-establishing their credit.  I do not agree.  Someone who just had a bankruptcy discharge or just had a foreclosure finalized should spend their money on getting secured credit cards. Not spending it on a credit repair company. First and foremost, recent derogatory credit items are almost next to impossible to remove. Credit Repair Process

How Hiring Credit Repair Can Backfire During Mortgage Process

The credit repair process is mainly the process of disputing derogatory credit items by writing dispute letters to the three credit reporting agencies and stating that the derogatory credit items are not yours.

The three credit reporting agencies:

  • Transunion
  • Experian
  • Equifax

Credit Disputes Are Not Allowed During The Mortgage Process

Consumers dispute derogatory information to the three credit reporting agencies. Credit Bureaus then in turn contact the creditor that is reporting the derogatory credit to the credit bureaus and the creditor has 30 days to respond back to the credit bureaus. If the creditor does not respond back with proof that the credit dispute is inaccurate, the three credit reporting agencies need to delete the disputed item from the consumer’s credit report. Credit repair does work but not on recent fresh delinquencies.

Mortgage Approval With Recent Late Payments

Credit repair and during mortgage process

You can have outstanding collections and charge-off accounts. However, you need timely payments in the past 12 months. If you have recent late payments, the best way to offset that is to get new credit tradelines. It is easy for the creditor to pull up records of fresh documents and confirm them to the three credit reporting agencies.

How Many Secured Credit Cards and What Credit Limit Will Maximize My FICO?

Efforts should go to re-establishing credit by getting 3 to 5 secured credit cards with a $500 credit limit. Credit scores will go up over time. I would not worry about the derogatory credit items on the credit report. As time passes, the old derogatory credit items will have extremely little or no impact on credit scores. Home Buyers can get a home loan with bad credit Borrowers can qualify for mortgages with outstanding collections and charged-off accounts without having to pay them off.

FHA Loans For Credit Scores Down to 520 FICO

The best loan program for bad credit with low credit scores borrowers is FHA loans. FHA loans are very forgiving. Homebuyers can get a home loan with bad credit. As discussed in earlier paragraphs, homebuyers can qualify for a home loan with bad credit and a prior bankruptcy and foreclosure.

Best Options For Mortgage After Bankruptcy 

The waiting period is a two-year waiting period after Chapter bankruptcy discharge to qualify for FHA and VA Loans with re-established credit. There is a three-year waiting period after three years from the recorded date of a foreclosure and/or deed in lieu of foreclosure or short sale to qualify for FHA Loans. The waiting period is three years after the short sale HUD settlement statement date for those with a prior short sale to qualify for FHA Loans.

Buying A House After Short-Sale of Previous Home

If the homeowner was current on his or her mortgage payments until the date of the short sale, there is no mandatory waiting period to qualify for government and conventional loans. However, many mortgage lenders want homeowners to skip a mortgage payment in order for the short sale to be effective. This one late payment will cause a three-year waiting period after a short sale.

FHA Loans With Outstanding Collections And Charge Offs

Home Buyers can qualify for a residential mortgage loan with open collections and prior bad credit. FHA does not require you to pay off old collection accounts in order to qualify for an FHA loan. However, lenders may have overlays and require collections and delinquent credit accounts to be paid off.

What Are Lender Overlays?

What Are Lender Overlays?

The reason for overlays is they might fear that those collection accounts will become future judgments. Lenders will see if borrowers have re-established credit after bankruptcy and/or foreclosure. Re-establishing credit after bankruptcy and/or foreclosure is an absolute must for those to qualify for a mortgage. Going through bankruptcy can be a tough situation. Bankruptcy can save many Americans from their current financial situation. Filing bankruptcy is not everyone’s first choice. But it’s sometimes the only option. Many of our clients are currently in a Chapter 13 Bankruptcy or less than 2 years out of a Chapter 13 bankruptcy. It can be a struggle to see your credit score recover after filing or discharging a bankruptcy. In this blog, we will give you a few pointers on how to qualify for a mortgage during or after bankruptcy.

USEFUL LINK: Learn How To Rebuild Your Credit After Bankruptcy

Qualifying For FHA Loans During and After Bankruptcy With Credit Scores Down to 520 FICO

FHA and VA have the exact same guidelines when it comes to qualifying for a mortgage during the Chapter 13 Bankruptcy Repayment Plan. VA and FHA are the only two mortgage programs that allow borrowers to qualify for a mortgage during the Chapter 13 Repayment Plan. It is important to understand that per HUD guidelines, you can obtain a mortgage while in an active Chapter 13 Bankruptcy. The same is not true for a Chapter 7 bankruptcy.

Mortgage Approval For VA Loans During and After Bankruptcy

VA loans during Chapter 13 Bankruptcy are almost identical to FHA loans. Both agencies allow manual underwriting but the debt to income ratio is restricted to 40% front-end and 50% back-end debt to income ratio. AUS-approved VA loans do not have a maximum debt to income ratio cap with an approve/eligible per automated underwriting system. Manual underwriting allows timely payments in the past 12 months with an exception. However, HUD requires timely payments in the past 12 months.

How Soon Can I Qualify For an FHA Loan After Filing Chapter 13?

HUD Chapter 13 Guidelines to be Eligible For an FHA Loan During Chapter 13 Bankruptcy Repayment Plan. Borrowers can qualify for an FHA loan while in a Chapter 13 repayment plan. You need to have been in the Chapter 13 repayment plan for 12 months and have made 12 on-time payments. As long as you have been in Chapter 13 for one year need, you are then eligible to enter into a mortgage with the permission of the trustee.

What Type of Mortgage Options Do I Have During Chapter 13 Bankruptcy Repayment Plan

The only mortgage program that allows mortgage approval during the Chapter 13 repayment plan is VA or FHA loans. It can sometimes be difficult to get your credit score above 580 while in an active chapter 13 bankruptcy. Many times, your trustee does not want you to acquire new debt or open new tradelines. I bring this up because your credit score does need to be above 580 to utilize a 3.5% down payment on an FHA loan. Otherwise below 580, a 10% down payment is required. If you are below 580, we suggest you ask the trustee to open a secured credit card. You have a better chance of the trustee saying yes to a secured card vs a typical revolving credit card.

How To Rebuild Credit After Bankruptcy With a Recent Discharge?

The main topic of this blog is “re-establishing credit after a bankruptcy”. If you are going to obtain a mortgage while in active chapter 13 or less than two years out of the repayment plan, re-establishing credit will help you secure the loan. While it is not mandatory per HUD guidelines, it will definitely help your overall loan application. The main reason reestablishing credit is important is the impact it has on your overall credit score. As you may know, it is hard to raise your credit score. The credit score will determine the interest rate you qualify for. Obtaining a lower rate will increase your purchasing power or save you on your overall monthly payments. Everyone likes a lower payment!

Step-by-Step Process on How To Rebuild Your Credit After Bankruptcy

Step-by-Step Process on How To Rebuild Your Credit After Bankruptcy

The general rule of thumb of a re-established tradeline is an open tradeline with zero derogatory marks for 12 months. This is part of the reason there is a 12 payment history requirement on your chapter 13 bankruptcy before you can enter into a new FHA mortgage. The same is true for loan modifications, we must verify that 12 payments have been made on time to the modified mortgage before you met refinance or purchase a new home with a VA or FHA loan. That being said, after a bankruptcy it is important to re-establish a positive tradeline or tradelines.

Learning How To Rebuild Your Credit After Bankruptcy To Buy A House

The team at Gustan Cho Associates are mortgage experts who helped many clients who have dealt with or are dealing with bankruptcies. Gustan Cho Associates can help borrowers in Re-Establishing Credit After Bankruptcy And Foreclosure. We have seen every credit profile on the planet, from the good, to the bad, and even to the ugly. If you do not qualify today, we will put you on a financial plan to qualify as soon as possible.

Finding The Best Mortgage Lenders For Borrowers During and After Bankruptcy

If you are in the home buying market and have questions on mortgage qualifications surrounding bankruptcy, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Even if you are one day out of a Chapter 7 bankruptcy, we have a full slate of NON-QM mortgage programs that can help you. Gustan Cho Associates is one of the very few national lenders that offer mortgages one day out of foreclosure and bankruptcy.

This BLOG On Re-Establishing Credit After Bankruptcy To Qualify For Mortgage Was UPDATED On May 22nd, 2022