Anthony Asks… I had to file a Chapter 7 bankruptcy 2 years ago due to a loss of a job and the inability to pay my mortgage. I got a discharge of my debts in the bankruptcy and the lender foreclosed on my home. What do I need to do to rehabilitate my credit and when can I expect to be able to apply for a new loan?”

Anthony this is a common situation right now. Im sorry you had to go through the experience.

The FHA and VA guidelines state that you have to be discharged from a Chapter 7 bankruptcy for 2 years in order to qualify for a new FHA or VA mortgage. They also state you must be a full 3 years from the completion of the foreclosure before you can apply for a new loan. So, you can apply for a new loan at the 3 year mark from the date of the public trustee sale on your former home. While you are waiting for that date, it is important to work on your credit and make sure it is satisfactory for the new loan qualifications. ie: you will need a minimum of a 620 credit score and 3 new trade lines of credit ( as of this publishing  – subject to change) Be prepared to pay higher interest rates on new credit and apply for secured lines of credit and prepaid credit cards ( that work like debit cards) in order to reestablish your credit. You will also want to make sure the debts that were included in your bankruptcy show zero balances and closed on your credit report. You will need to have saved 3.5% of the price for the down payment on a new FHA loan. A VA loan will allow 100% financing.

A conventional loan would have a 3 year requirement on the bankruptcy discharge and a 4 year requirement on the foreclosure completion date  (subject to a longer time frame at the lenders discretion) and more stringent credit requirements like higher credit scores – 680 plus and 10% down payment.

Don’t worry though, with a little effort and patience you can recover from this situation. Your credit WILL improve and so will your overall financial situation!

Here’s to your fresh start – good luck!

Meet Cheryl!

About Cheryl

As a successful business owner and community leader, Cheryl Braunschweiger is known and respected for getting things done with a degree of skill and enthusiasm that bring out the best in those around her - colleagues, clients and friends. The name of her business, ALMC Mortgage, reflects Cheryl's philosophy and personality. She says it stands for All Loans Must Close –a reflection of her determination to do whatever it takes to serve her clients. Cheryl has been in the mortgage lending business for 20 years. Read More About Cheryl
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