Post Bankruptcy Mortgages

Finding Poor Credit Mortgages

It would seem logical that getting credit after a bankruptcy discharge should be next to impossible. However, quite the opposite is true.

Many people report getting offers for new credit cards in the same batch of mail that contains their bankruptcy discharge.

There are several reasons for this. First the banks know you can’t go bankrupt again for another eight years. They also know that since you’ve just had most of your debts discharged, you now can afford to take on new debt.

Of course, the fact that these offers are not the cheapest in the world, also gives the bank some incentive to offer credit immediately.

With mortgages, things are a little different. Many mortgage lenders want to wait a while to see if you’re really back to being a model financial citizen.

So while it is possible to get a post bankruptcy right away – because the loan is secured, it is better to wait two or three years before applying. At that point your rate may be as little as a half a point over the going prime rate.

Not every lender is going to grant a post bankruptcy mortgage. Some will make you pay a high price for it. So it is important to shop around and find the best deals you can. Best Mortgages supplies more information on how to go about doing that.

It will be very helpful if you’ve rebuilt your credit by paying your bills on time and using just a portion of your credit lines. Having at least a 20% down payment and other assets will also help.

But if you need 100% financing you can probably get it if you look hard enough.

Before applying check your credit report to make sure all the debts that were discharged in bankruptcy are actually removed from your credit report. Also check your credit score.

A prime score is above 720 and you will rarely find someone that is scored that high within two years of bankruptcy.

In the next tier, between 700 and 720, your interest rate will be about 0.125% over the prime mortgage rate.

For scores between 675 and 699, you will pay about 0.665% over the prime mortgage rate at the time.

In the 620 to 674 tier, you’ll pay about 1.815% more.

Most bankrupts will be in the 650 area – if they behave themselves – within two years of bankruptcy. You will save a lot of money if you push your score above 675 before trying for a mortgage.

These numbers are not written in stone and vary from lender to lender. According to some news accounts, you can qualify for the lowest rates with a score of 620, but proof of that is hard to find.

That’s why shopping for a post bankruptcy mortgage is so important. You want to try to avoid sub-prime lenders if you can.

Remember one bank may consider a given score in a higher tier than another. That arbitrary decision can cost you lots of money.

So, all is not lost after bankruptcy. You just have to be able to re-establish your credit score and then shop carefully for a good mortgage deal.

Housing Bubble Update

The housing bubble has officially burst. The exact date is unimportant. What is important is how this will effect borrowers with poor credit.

Many sub-prime lenders, the only type that would grant a post bankruptcy mortgage, have gone bankrupt. In some cases, their officers are under criminal investigation. The sub-prime market has basically disappeared. Even worse, the subprime mess has come close to causing a worldwide banking collapse.

This means those with poor credit are going to find it harder to qualify for a mortgage and the terms will be more expensive. Borrowers will be required to come up with a downpayment and show the ability to pay not only the mortgage - especially ARM's after rate adjustments - but also to be able to afford insurance and taxes.

For people coming out of bankruptcy, this might not be possible.

I will no go so far as to say that it will be impossible for all newly bankrupted borrowers to get a mortgage, but the odds are most will not be able to until they show some sign of re-establishing credit and the ability to come up with a downpayment.

[In April 2008, I would say it probably is impossible for anyone with less than stellar credit to qualify for a mortgage.]

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