Time and time again, we hear about people that have given up all hope on becoming a homeowner due to filing bankruptcy. While a bankruptcy filing (and/or discharge) can be a major blow to your financial reputation and credit score, it is not an automatic denial when looking to buy a new home.
There are many factors that come into play when trying to buy a home, like your employment history, monthly (or annual) income, how much disposable income you have left over after your obligations are paid, how much money you have saved for a down payment. If all else fails, there is always the opportunity for a cosigner. These additional factors can all be weighed out to help you (even with a significant impact like bankruptcy on their credit report) still qualify for a home loan.
Remember this, with any style of loan there are mitigating risks and compensating factors that can help borrowers qualify for a loan that they otherwise would be denied for. For example, say both you and your neighbor filed for bankruptcy one year ago. You both work at the same company and you make the exact same amount of income every month. You may think that if your neighbor was denied for a loan you would be to, but as you dig deeper questions about savings, amount of down payment, or whether anybody in your family could help gift you a down payment or equity all make a difference. Additionally, did anything unexpected happen that led to the bankruptcy? Questions like these among others will vary one’s ability to be considered less of a credit risk than another, even if on the surface both applicants appear to be in a similar situation.
Working with an experienced mortgage lender, especially in a market as hot as Denver, Colorado, can make all the difference in the world. Knowing what questions to ask on top of the routine fact-finding questions can sometimes be the sole difference between an approval or a denial.
Below are some steps we recommend for anyone who’s been through something as challenging as a bankruptcy that will help increase your chances of obtaining a loan approval as fast as possible.
A bankruptcy is a significant life event that will age and your scores will naturally heal over time, especially if you pay your bills in a timely manner going forward. Bankruptcies may have specific time elements built into them when it comes to obtaining a new loan, but those are limited to government backed loans.
FNMA, FHLMC, VA loans, and FHAs all have minimum requirements for major credit events in order to approve your loan. The typical wait time after a bankruptcy discharge for a loan insured from the FHA is two years. With Fannie Mae or Freddie Mac (also known as a conventional loans) that wait time jumps up to four years but can be as many as seven! However, there are alternate solutions if compensating factors exist that mortgage loan could even be approved within 48 hours of a bankruptcy being discharged.
We hope that this guide has been helpful and gives you the encouragement you need. Buying a home is possible, even after an event as challenging as bankruptcy. To discuss your unique situation today, reach out to one of our expert loan advisers today!