It has recently been brought to my attention that the general public needs a little bit of guidance when it comes to what to do after a bankruptcy. I have encountered a number of people who have had to claim bankruptcy for one reason or another and when it comes time for them to buy a new home, they can’t and only because no one has explained what needs to happen in the finance world in order to survive after a bankruptcy.
First, I have come across clients who claimed bankruptcy because they were informed by a professional that “it’s your only option”. This one kind of drives me crazy because sometimes, it really isn’t the only option. I know this is not my line of work but I think my first words of advice are to make sure you are sure it’s your only option. If you do end up having to go through a bankruptcy, here is what lenders will be looking for from you before they will give you a mortgage.
If you are going to go to your regular bank to try to get a mortgage and a bankruptcy appears on your credit report, that’s the end of the line. I do not know of any of the major banks that will lend to someone who has a bankruptcy reporting (and I used to work for one of these banks). That means for 7 years, yes, that’s right, 7 years, you are not getting a mortgage through your bank. This is where I fly in and save the day, (picture me as bat girl or superwoman if you must). I can and have gotten people into their homes with a bankruptcy reporting on their credit report.
Not everyone that claim bankruptcy does it because they are bad with their money. Some people have had a family illness that cause them financial hardship, some claim to be “young and stupid” and tell me they know better now (maybe they do, maybe they don’t) and most common is a divorce/separation. Some lenders will look at the reason and be more understanding, some will not. What is most important to them is a look at how you handle your credit post-bankruptcy.
It does vary from lender to lender but here is a bit of an idea on how you can prepare yourself if you do want to purchase your home before that 7 years passes.
– Most have a minimum 2 – 3 years from time of discharge of the bankruptcy
– Most require 1 – 2 years of re-established credit, CLEAN credit! They have VERY LITTLE leniency for even one missed payment after a bankruptcy, no excuses
– Most require at least 2 trade lines reporting for that 1 – 2 years. A trade line is a type of credit, like a credit card, loan or line of credit (again, can’t stress enough, NOT 1 missed payment)
– Most require a minimum beacon score (your credit score from your credit report) of 600 – 620 depending on the lender
– Most will ask for more than the minimum 5% down payment, some ask 10%, some ask 15% or more
– Few lenders will allow any of that down payment to be gifted, they want to see that you have re-established a savings and are more responsible with your money
These are the things that are going to help you qualify for a mortgage. This does not mean if you have met all the requirements, that there is a guarantee but if you want to give yourself a fighting chance, you need to meet these criteria. Everyone makes mistakes and recovery is the important part, so if you have had to go through a bankruptcy, please be sure to take extra care of your credit so you can put the past behind you. Lenders don’t deny people based on one missed payment but post-bankruptcy, they go through your credit report with a fine tooth comb.
If you are struggling to get things back on track after your bankruptcy and want to buy a house, give me a call and I can help get you on the right track.
Naomi Hamm, Mortgage Broker & Partner
Office: (204) 727-2177
Cell: (204) 724-7290