(MoneyHippo.com) – When people declare bankruptcy and discharge much of their debt, they have a mark on their credit report telling lenders there is cause for worry. If you’re in this situation, don’t lose hope. Although this financial move can make it more challenging to obtain a mortgage, it’s not impossible.
Here are some steps you can take to restore the bank’s confidence.
- Credit Score Work: Filing for bankruptcy will damage your credit score, so it’s important to bring that number back up before applying for a mortgage. Pull your credit reports from all three bureaus (Experian, TransUnion, and Equifax) to get a complete picture of where you stand. Eliminate anything that doesn’t belong there and diligently pay bills on time to improve your bottom line.
- Avoid Unnecessary Debt: While you concentrate on paying down credit card balances and reducing any other outstanding debts, don’t open any new lines of credit. The less debt you have going into the application process with the bank, the better. Eliminate your obligations as quickly as possible to keep your debt-to-income ratio as low as possible.
- Save and Wait: Although buying a house now might look attractive, you might want to wait. As your credit score rises and debts decrease, your chances of obtaining a mortgage go up. Use the time to save for a down payment or to pay points for a lower interest rate when the time comes.
Although you might not need to wait 7 to 10 years for a bankruptcy to fall off your credit report, at a minimum, you’ll probably need to postpone 2 to 4 years after filing. The more time you accumulate with no negative instances, the more likely the bank will favorably consider your mortgage request.
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