Q: My husband and I are in our final year of bankruptcy this year. We did a chapter 13 in sept 2010.
Income has significantly increased over the years and we would like to purchase a new home this year.
My question is how soon after our bankruptcy disclosure might we qualify for a loan – with a down payment?
If possible, are there lenders you can recommend who might be best to deal with in these situations?
Finally what steps can you recommend we take between now and (hopefully year end) so we can qualify? Any help you can give would be appreciated!
A: Your bankruptcy won’t stop you and your husband from getting a mortgage, but it may not be as soon as you’d like. That’s because your eligibility for various mortgages depends on the type of bankruptcy you filed and the outcome of that bankruptcy.
Most banks want you to conform to Fannie Mae guidelines and here’s what Fannie says. Fannie Mae distinguishes between Chapter 13 bankruptcies that were “discharged” versus those that were “dismissed.”
I’m not sure what’s the case for you, but I think you meant to say that your bankruptcy will soon be “discharged.” (In your original email, you asked about “disclosure” — you said: “My question is how soon after our bankruptcy disclosure might we qualify for a loan – with a down payment?”)
Again, I’m assuming you meant a bankruptcy discharge. But let me tell you the rules either way.
— With a Chapter 13 bankruptcy that’s been discharged, you have to wait two years before you’re eligible for a mortgage.
With a chapter 13 bankruptcy that’s been dismissed, you need to wait four years before you’re eligible for a mortgage. However, if you had “extenuating circumstances” — like job loss, death of a family breadwinner, extreme medical illness/healthcare bills, etc. – then your waiting period after a dismissal can be reduced to two years.
See this Fannie Mae document re: mortgage qualification after a negative credit event, including bankruptcy.
Now let me address your other question. There are lots of things you can do to start preparing yourself for homeownership. Begin by pulling your credit reports from annualcreditreport.com. Make sure there are no errors on your or your husband’s credit files.
It’s good news that your income has risen. Make sure you pay ALL your bills on time. That alone will help boost your credit scores.
Also, don’t apply for any credit. You don’t want inquiries to lower your credit scores.
If you have credit card bills (probably not), pay down debt. If not, pay down other debts like auto loans, student loans, etc. That will help lower your debt-to-income ratio and help you qualify for a mortgage.
Finally, here is an article I wrote about getting ready to buy a home and how to prepare for a mortgage.
10 Practical Tips to Prepare to Buy a Home This Year
If you follow these tips and the advice in that article, you won’t have any trouble at all finding a lender willing to work with you and approve you for a mortgage.