Bankruptcy And Foreclosure

Having a bankruptcy or a foreclosure is not the end of the world.  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 job, even for a few months, can turn your financial situation upside down and cause tremendous stress.  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 being able to meet their monthly debt obligations and force them to foreclosure and/or bankruptcy and many times to both foreclosure and bankruptcy.

Credit After Bankruptcy and Foreclosure

A bankruptcy and/or foreclosure 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 the bankruptcy and/or foreclosure ages.  A person who filed bankruptcy and/or had a prior foreclosure can get credit again and 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 a residential mortgage loan.  Mortgage lenders want to see a mortgage loan applicant have re-established credit after the bankruptcy and/or foreclosure.  Re-establishing credit after bankruptcy and foreclosure should be initiated as soon as possible.

Using Secured Credit Cards To Re-Establish Credit

The best way in re-establishing credit after bankruptcy and foreclosure is by getting several secured credit cards.  Secured credit cards are the best tools in re-establishing credit after bankruptcy and foreclosure.  Each secured credit card can help boost your credit scores by 20 or more points after bankruptcy and foreclosure.  You should try to get between 3 to 5 secured credit cards after your bankruptcy discharge and/or foreclosure.  Not only is the secured credit cards going to help your credit scores, but it will develop credit history and most mortgage lenders will want to see a minimum of three established credit tradelines after a bankruptcy or foreclosure.  Secured credit cards will open doors to unsecured credit cards and other credit for the future.  Also, the credit limit on your unsecured credit cards will most likely get a credit limit boost without you having to put any additional deposit.

Re-Establishing Credit After Bankruptcy And Foreclosure

Many folks who just filed bankruptcy and had their bankruptcy discharge and those who just went through a foreclosure often are fed up with credit and 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 and credit is what got them financial problems but not having credit will actually hurt you when it comes to qualifying for a residential loan after your waiting period after bankruptcy and foreclosure has elapsed.  Mortgage lenders want to see at least three to five established credit tradelines.  What are credit tradelines?  Credit tradelines are established credit accounts such as credit card accounts, department store accounts, auto loans, student loans, mortgage loans, and other installment or revolving credit accounts that has been seasoned for at least 12 months.

Credit Tradelines

FHA and Fannie Mae mae require a certain amount of credit tradelines but each individual mortgage lender may have their own mortgage lender overlays with regards of having additional credit tradelines.  If you are intending on buying a home in the near future after you had a prior bankruptcy or had a prior foreclosure, just passing the waiting period is not sufficient to qualify.  You need to start re-establishing your credit by getting new credit and the time to start is immediately.  Remember that you are not getting secured credit cards to use it but you are getting it as a tool for boosting up your credit and re-establishing your credit and developing your credit history.  Good credit and established credit is always good.  Good credit mean lower interest rates on auto loans, mortgage loans, credit cards, and your insurance premiums will be much lower if you have good credit.  Insurance companies check credit reports and credit scores when evaluating your risk factor.  Good credit is also important when it comes to bonding your license and/or business.  Bond companies issue lower rates for those who have good credit versus those with bad credit.  Good credit also is important for employment.  Many employers check prospect’s credit report and credit scores as part of their hiring and promotional process.  Employer’s mentality is that those with good credit are financially responsible.

Credit History

When a creditor or a mortgage loan underwriter reviews your credit, they will not just check your credit scores but will also review your credit history.  As mentioned earlier, if you just filed bankruptcy or recently had a foreclosure, your credit scores will definitely get a three digit credit drop.  Creditors and mortgage loan underwriters will review your overall credit history where you had great credit for many years, then they will notice the sudden drop of your credit scores during your bankruptcy and/or foreclosure period, and then they will see you re-establish your credit and see your credit scores back on the upswing and a good payment history.  These types of patterns is understandable and anyone reviewing your credit report will see that you are a financially responsible person because they see you had great credit for the majority of the time and had an extenuating circumstance where your credit dropped.  Mortgage underwriters will require a letter of explanation on what caused your bankruptcy and/or foreclosure.  You can write a detailed letter of explanation on the cause of your bankruptcy and/or foreclosure.  It can be a loss of job, loss of business, divorce, medical reasons, or death in the family.  Re-establishing your credit is of utmost importance and the sooner you re-establish your credit, the better it will be.

Credit Repair After Bankruptcy And Foreclosure

The are many folks who recently filed bankruptcy or had a foreclosure 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 in getting secured credit cards and not spending it to a credit repair company.  First and foremost, recent derogatory credit items are almost next to impossible to remove.

Credit Repair 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 is not yours.  The three credit reporting agencies; Transunion, Experian, Equifax; 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 dispute item from the consumer’s credit report.  Credit repair does work but not on recent fresh delinquencies.  It is easy for the creditor to pull up records of fresh documents and confirm it to the three credit reporting agencies.  Your efforts should go to re-establishing your credit by getting 3 to 5 secured credit cards with $500 credit limits.  Your credit scores will go up over time.  I would not worry about the derogatory credit items on your credit report.  As time passes, the old derogatory credit items will have extremely little or no impact on your credit scores.  You can get a home loan with bad credit.

Home Loan With Bad Credit

Home buyers can get a home loan with bad credit.  As discussed in earlier paragraphs,  people can qualify for a home loan with bad credit and a prior bankruptcy and foreclosure.  There is a two year waiting period after bankruptcy discharge to qualify for a residential mortgage loan 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.  There is a three year waiting period after the short sale HUD settlement statement date for those with a prior short sale.  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 a residential mortgage loan.  However, many mortgage lenders want you to skip a mortgage payment in order for the short sale to be effective.  This one late payment will cause you a three year waiting period after a short sale.

FHA Loans

You 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 a FHA insured residential mortgage loan.  However, a mortgage lender might have their own mortgage lender overlays and require for collections and delinquent credit accounts be paid off because they might fear that those collection accounts will become future judgments.  Mortgage lenders will see if the mortgage loan borrower has re-established credit after bankruptcy and/or foreclosure.  Re-establishing your credit after bankruptcy and/or foreclosure is an absolute must if you want to get a residential mortgage loan approval.

Credit Fix Advisors

Credit Fix Advisors is a premier credit repair company that Gustan Cho Associates endorses and highly recommends.  Visit Credit Fix Advisors at www.creditfixadvisors.com 

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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