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Recent Bankruptcy? Its Not Impossible to Obtain a Home
Loan
Because the new bankruptcy laws go into effect on October 17,
2005, more Americans than ever are filing for relief using the
federal bankruptcy laws. The vast majority are simply
overextended and cannot possibly repay the obligations they have
open.
However, for many filers, the opportunity of homeownership may
be possible immediately after discharge. Ironically, some those
that would not previously qualify for a mortgage do qualify after
a bankruptcy.
How is that possible? An example of this is Dave Olson (a
fictional character). He earns $4,000 per month, spends $1,000 on
rent,$250 on car payments, and $2,000 on credit card minimum
payments. The DTI* (debt-to-income) ratio of this person is
81.25%. Since his credit score is low (600 middle FICO), the only
option is a mortgage that requires full documentation. Most of
those loans require a DTI of 50-55% maximum.
The Chapter 7 bankruptcy is filed and Dave gets a discharge.
He reaffirms his auto loan and still rents for $1,000/month.
However, now his monthly debt is much lower
(($1,000+250)/4,000=31.25%).
The bankruptcy has actually increased his chances of obtaining
financing for a purchase. Many times, the credit score is the
same after the bankruptcy as prior to filing (unless creditors
report incorrectly). By filing simple dispute letters with the
three credit bureaus, those discrepencies can be cleared up
within a few months.
It makes sense that borrowers are most ready to borrow for
home purchases after bankruptcy because they cannot file Chapter
7 for 6 years, their obligations are lowered, and the property
being purchased is secured. That means the lender can repossess
the property if payments are not made timely.
There are some things to keep in mind if you are purchasing a
home after a recently discharged bankruptcy.
1) A down payment isn't always necessary, but it will improve
the rate.
2) Most people opt for an Adustable Rate Mortgage (ARM) since
the rates are much lower than a fixed and they plan to refinance
in 2-3 years.
3) Most of these loans have a prepayment penalty that matches
the fixed period of the financing.
4) Most lenders require cancelled checks or verification of
rent paid not later than 30 days in the past 12 months.
5) A foreclosure before the bankruptcy is hard to overcome. A
foreclosure as a result of the bankruptcy usually doesn't
count.
Everyone's situation is different. To ensure the best service,
be sure you contact an experience mortgage originator that will
take the time to listen to your situation and explain all the
possibilities. It shouldn't cost you anything to inquire.
Clinton Bengtson has been a mortgage originator (loan officer)
for almost 5 years. Prior to that, he was a CPA working at
several large companies. Clint Bengtson has helped hundreds of
people become homeowners that were declined at other lenders.
Experience is important and can mean the difference between
approved and not approved. Visit his website at http://www.mnmortgage.net
for more information.
 MORE RESOURCES updated Thu. February / 09 / 2012
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