We are here to help set the record straight, and let you know that buying or refinancing your home mortgage after Chapter 13 Bankruptcy is possible. There is a lot of misinformation about getting a mortgage after Chapter 13 Bankruptcy. Understanding the following myths about getting a mortgage after Chapter 13 Bankruptcy can help you achieve your goal of home ownership much faster.
Myth #1: You must wait two years from the discharge date in order to obtain a mortgage after Chapter 13 bankruptcy.
This is a common misconception although it does have some truth. There are some loan programs and certain lenders that make you wait up to two years to get a mortgage after bankruptcy. With agencies like the FHA, VA, USDA, and products like portfolio and conventional loans, you can get a mortgage as soon as one day after your bankruptcy discharge. You can even get a mortgage during your Chapter 13 plan.
Ensure that you contact a lender that thoroughly understands the issues; and complex guidelines that you are facing with bankruptcy. Many lenders do not understand these issues since they do not specialize in offering mortgages after bankruptcy.
Myth #2: Your credit is shot after a bankruptcy and there is no way to fix it.
Although we are not credit consultants, our team has seen some cheap, easy, and fast ways to improve your credit after Chapter 13 Bankruptcy.
- First of all, get a secured credit card and use it sparingly. In the long run, this action can increase scores as much as 40 points.
- Also, check your credit history and remove inaccuracies. Often debts that have been settled in bankruptcy are reporting incorrectly. Contact these creditors with your discharge papers, and have them remove the mistakes.
- Finally, it is vital to make your payments on time because even one late payment; can dramatically hurt your credit score.
Myth #3: I need to save 20% of the purchase price for a down payment after my Chapter 13 bankruptcy.
Making a large down payment on a home is often a sensible decision when possible, because it lowers the overall loan amount. However, there are loan programs available for clients that can provide a mortgage after Chapter 13 bankruptcy well below a 20% down payment. These programs offer a down payment as low as 0% for USDA mortgages in rural areas. Similarly, a VA loan for Veterans also offers a 0% down payment. Borrowers with an FHA Loan can see a down payment as low as 3.5%.
Myth #4: I can’t do a cash out refinance after my Chapter 13 mortgage
Cash out refinances are available for many clients after Chapter 13 discharge. This is often an effective way to consolidate debts, make home improvements, or build up your savings. Many clients who have been trapped in high rate mortgages are able to lower their rate, and get cash out to pay off other high rate debts.
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Published (August 10th, 2018)