Even though you had financial hurdles in the past, you still have opportunities in the world of modern real estate. Here are six ways to improve your chances at mortgage loans after bankruptcy.
1. Is my credit back in order?
The most debilitating financial effect of a bankruptcy is the long term marks that it puts on your credit. In most cases, the bankruptcy rbains on your record for seven years; however, there are ways to turn your credit report around even before this period is up. First, ensure that you have no other outstanding loans or debts on your record. Pay thb back one by one starting with the smallest and working your way up. Use reputable debt consolidation and credit repair programs to get multiple loans organized and reduce payments into a manageable form. If you cannot pay down all of your debts immediately, focus on paying the minimum on time.
Also note that the credit report that a mortgage lender sees is different from the FICO score that you see. Although your mortgage lender credit score is definitely affected by some of the same things as your FICO score, they are not synonyms by any means. Check this score with a trusted lender at least twice a year to see how you are doing.
2. Do I have a guarantor?
If you have close friends or family who believe in you, you may leverage that belief into a financial tool known as a guarantor. A guarantor is simply a third party who helps to guarantee a loan from a bank. Because this person has a responsibility to pay off a mortgage if you default, you lower your risk profile in the eyes of your lender.
The numbers do not tell the entire story about you. However, bankers may not have the authority to override what their computers say about your debt to income ratio or your recent bankruptcy. Use the concept of a guarantor to get past this hurdle and back into real estate.
3. Have I handled my other debt?
If there are other debt itbs that you have yet to conclude, you would do well to pay thb down as quickly as possible. Although the bankruptcy is likely taking up most of the space on your credit report, any other debts that you hold are also weighing down on the other metrics that bankers check in order to take stock of your financial health.
The debt to income ratio, for example, is one of the more important statistics that bankers look at before they take you on as a borrower. If you have recently faced a bankruptcy, then you likely have faced collection of other debts. Do everything that you can to get rid of these other debts so that the metrics outside of your credit score will look good to bankers when you go in for your next mortgage.
4. Have I reduced my expenses as much is possible?
Another aspect of making yourself appealing to lenders after bankruptcy is reducing expenses. Anything that you can reduce will help in this endeavor, including things that you may not believe to be negotiable.
If you are still paying a loan on a luxury vehicle, you may want to sell that vehicle and buy a economy car for cash. This will completely eliminate your car payment debt and probably reduce your automobile insurance expense as well. You can also look towards an investment in Energy Star appliances in order to save money on your monthly utility bills. Once you can show your banker that your expenses are substantially below the level they were during your bankruptcy, you will begin to earn their forgiveness and even their respect.
5. Am I trying to buy too large of a house?
If you are trying to work your way back into the good graces of your bankers, you may need to start small. Work your way back up with a smaller property instead of trying to maximize the money that you get from a loan. You may also take advantage of government-subsidized programs that will help to reduce your risk profile. Such programs include the Federal Housing Administration (FHA), the United States Department of Veterans Affairs (VA), and the Navy Federal Credit Union. These programs work better if you are dealing with smaller properties that fit under conforming loan guidelines.
6. Have I created a relationship with my banker?
Personal relationships will save you when nothing else can. Building a relationship does not mean that you have to take your banker out for sushi, but it does mean that you should keep your banker informed of your actions to improve your financial situation. If your banker believes that he has a personal stake in your success, he will be much more likely to help you along when you get ready for your next mortgage.
2 Point Highlight
If you are still paying a loan on a luxury vehicle, you may want to sell that vehicle and buy a economy car for cash.
Building a relationship does not mean that you have to take your banker out for sushi, but it does mean that you should keep your banker informed of your actions to improve your financial situation.
