Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

This BLOG On Re-Establishing Credit After Bankruptcy To Qualify For Mortgage Was UPDATED And PUBLISHED On February 20th, 2020

Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

Re-Establishing Credit After Bankruptcy To Qualify For Mortgage should be done the minute the Chapter 7 Bankruptcy discharge has been completed.

  • Those who filed Chapter 13 Bankruptcy need to religiously make their monthly debt payments timely to their list of creditors

Most lenders WILL NOT accept any borrowers who had one late payment after the following:

  • Chapter 7 Bankruptcy discharge
  • During Chapter 13 Repayment Period
  • After foreclosure
  • After deed in lieu of foreclosure
  • After a short sale

They classify borrowers who had late payments after bankruptcy and foreclosure as a second offender:

  • Most lenders will steer away from them
  • This holds true even though they get automated approval via the Automated Underwriting System
  • Late Payments after bankruptcy is not a HUD, VA, Fannie Mae, Freddie Mac, or USDA Guidelines
  • Many times the Automated Underwriting System will deny a borrower if the system recognizes late payments after bankruptcy and foreclosure
  • This includes short sale and deed in lieu of foreclosure

In this article, we will discuss and cover re-establishing credit after bankruptcy to qualify for a mortgage.

Re-Establishing Credit With Debts Excluded From Bankruptcy

That depends on what someone does after filing for bankruptcy.

  • Petitioners that decide to exempt  car and mortgage loans when filing bankruptcy
  • Filing Chapter 7 Bankruptcy can plummet credit scores more than 100 points
  • However, timely payments on debts that are not discharged are made, credit scores will gradually go back up
  • It is a form of re-establishing credit after bankruptcy to qualify for mortgage
  • The easiest and fastest way of re-establishing credit after bankruptcy to qualify for mortgage is to obtain three to five secured credit cards:
    • For a maximum score, increase potential make sure they are at least a $500 to $1,000 credit limit
  • Secured credit cards under $500 credit limits will do minimum impact in improving credit scores
  • There is a borrower that comes in mind where he got a 0% car loan after one year of filing Chapter 7 Bankruptcy
  • Had credit scores of over 700 FICO
  • This was because he was diligent in re-establishing credit right after the discharged date of his chapter 7
  • There are three different credit reporting agencies
  • Each of the three agencies has different models in calculating credit scores
  • One credit bureau may have a different credit score than the other two

Not Obtaining Credit After Chapter 7 Bankruptcy

Many consumers who file Chapter 7 Bankruptcy do not want anything to do with credit and buy everything cash.

  • They believe that credit got them in trouble and do not want to do anything with credit
  • Unfortunately, by not obtaining new credit and having no credit reporting on their credit report, it ends up hurting them and their credit scores remain low
  • I highly recommend that consumers who got a bankruptcy discharge get a few secured credit cards
  • This holds true even though they do not use them
  • I do realize that it cost an annual maintenance fee plus that fee is worth its weight in gold
  • Each secured credit card can boost a consumer’s credit scores by at least 20 to 50 points
  • After 3 secured credit cards, the improvement of credit scores greatly reduces
  • Also, the consumer credit profiles will strengthen as it ages
  • I run into many borrowers who have filed bankruptcy years ago but still have credit scores of under 580 FICO and have never had a collection account or charge off account
  • They also have a perfect payment history with not a single late payment
  • However, their credit remains low because of no re-established credit after Chapter 7 Bankruptcy

Purchasing A Vehicle While In Chapter 13 Bankruptcy

How to buy a vehicle during Chapter 13 Bankruptcy

Filers of Chapter 13 Bankruptcy are eligible for an automobile purchase during their Chapter 13 Bankruptcy.

  • Need to provide Chapter 13 Bankruptcy Trustee the type of vehicle they are buying, the terms and interest rates on the proposed automobile loan, the purchase price, the down payment, and other factors involved with the car purchase
  • This is so the Trustee can file a motion on behalf of the consumer that they are going to incur the auto debt with the U.S. Bankruptcy Courts
  • The courts will do a full review of the request
  • They will analyze the documents provided and then render a decision
  • Most of the time, the courts will approve an auto loan request
  • This holds true unless it is a luxury or exotic automobile
  • Automobiles are a necessity for people to commute to work and do other domestic tasks such as shopping, driving children from and to school, etc.

If you pay off a vehicle while in a Chapter 13 Bankruptcy, the automobile lender needs to send you the title to the vehicle to you and the vehicle is completely yours.

Purchasing A Vehicle While In Chapter 7 Bankruptcy Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

For consumers in a Chapter 7 Bankruptcy, it is best recommended that they wait until their it has been discharged which is normally 90 days from the filing date and then purchase a new car and obtain a car loan.

  • There are many car finance companies that will finance car buyers just out of a Chapter 7 Bankruptcy but your interest rates will be high
  • The best recommendation I can give consumers is trying to re-establish credit and wait for credit to the season for at least six months
  • Then buy and finance a new car
  • If you need a car sooner, the auto lender may require buyers to have a co-signer

Qualifying And Re-Establishing Credit After Bankruptcy To Qualify For Mortgage

Homebuyers can qualify for a mortgage after both Chapter 7 and Chapter 13 Bankruptcy.

Here are the qualification requirements to qualify for a mortgage after Chapter 7 Bankruptcy:

  • 2 year waiting period after the discharge date of Chapter 7
  • Re-established credit after Chapter 7
  • No late payments after Chapter 7
  • Minimum 580 FICO 
  • Re-Establishing Credit After Bankruptcy To Qualify For Mortgage is strongly recommended
  • Gustan Cho Associates has no overlays on FHA Loans

VA And HUD Guidelines On Chapter 13 Bankruptcy

What are the VA and HUD guidelines for Chapter 13 Bankruptcy

Here is the qualification requirements to qualify for a mortgage after Chapter 13 Bankruptcy on FHA and VA Loans:

  • Borrowers can qualify for an FHA Loan one year into a Chapter 13 Bankruptcy with the approval of the Trustee
  • It will be a manual underwrite
  • All manual underwrites require verification of rent
  • Re-Establishing Credit After Bankruptcy To Qualify For Mortgage is highly recommended
  • There is no waiting period after a Chapter 13 Bankruptcy discharged date
  • No late payments during and after Chapter 13

Qualifying For Government And Conventional Loans With Direct Lender With No Overlays

Many borrowers are told that they do not qualify for a VA or FHA Loan after a Chapter 13 Bankruptcy unless they meet a one to two-year waiting period.

  • This is absolutely not the case and not true
  • Under Guidelines of the Veterans Administration and HUD Guidelines, there is no waiting period after a discharge date of a Chapter 13 Repayment Plan
  • Each lender can have overlays on waiting period after Chapter 13 Bankruptcy discharge date and do not have to honor VA or FHA Guidelines
  • Gustan Cho Associates does not have any overlays on FHA, VA, USDA, and Conventional Loans.

Borrowers who are told that they do not qualify for a FHA or VA Loan after a Chapter 13 Bankruptcy, contact us 262-716-8151 or text for faster response. Gustan Cho Associates Mortgage Group has no overlays on government and conventional loans. Our viewers can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your mortgage inquires.

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