Steps When Applying for a Mortgage After Bankruptcy

 Posted on May 06, 2024 in Mortgage

Declaring bankruptcy can offer significant debt relief, yet it also affects your credit score and the potential to secure new credit lines, such as mortgages. Keep in mind that bankruptcy does not indefinitely prevent you from acquiring a home in Texas. With the right preparation and guidance from a Texas lawyer, you can improve your chances of mortgage approval after bankruptcy.

Make Sure You Understand Waiting Periods

Under Texas law, you must observe specific waiting periods after bankruptcy before applying for certain types of loans, including mortgages backed by government programs like FHA, VA, and USDA:

• Chapter 7 Bankruptcy: You should wait two years from the discharge date for FHA, two years from the discharge date for VA, and three years from the discharge date for USDA

• Chapter 13 Bankruptcy - It is ideal to wait one year from the start of your repayment plan for FHA if you made all payments on time, one year from the start of the repayment plan for VA, and one year from the start of the repayment plan for USDA

Conventional mortgages typically require a longer waiting period of four years after Chapter 7 or missed payments during Chapter 13.

Rebuild Your Credit

Lenders examine your credit report closely during the mortgage application process. Take proactive steps to rebuild your credit after bankruptcy:

• Obtain credit reports from all three major bureaus and dispute any errors
• Make all new credit payments on time every time
• Limit credit utilization to 30% or less of your total credit limit
• Build a positive credit mix with different types of credit accounts

Having disciplined credit behavior for at least 12 months can significantly improve your approval chances.

Save for a Larger Down Payment

A substantial down payment can help offset risk concerns lenders may have because of your past bankruptcy. You should try to save a down payment of at least 10-20% of the home’s value.

Be Prepared with Documentation

Mortgage lenders require extensive documentation when you have a bankruptcy on your record. Gather paperwork that explains the circumstances leading to your bankruptcy filing, such as job loss, medical bills, or divorce. Having explanations and proof ready can smooth the approval process.

Get Pre-Approved

Before beginning your Texas home search, get pre-approved by providing your financial details to a lender. A pre-approval letter shows sellers you are a qualified, prepared buyer and can strengthen your offer.

Stay Patient and Positive

Receiving mortgage approval after bankruptcy requires perseverance. If initially rejected, ask the lender for clarification on which factors need improvement. Maintain your financial discipline, and you will be in a stronger position to apply again soon.

Contact a Boerne, TX Bankruptcy Attorney

Buying a home after bankruptcy is challenging but achievable with proper preparation and guidance. Working alongside a San Antonio, TX bankruptcy lawyer can help make sure you are making the best moves in your situation. Call Law Offices of Chance M. McGhee at 210-342-3400 to set up a free consultation.