Bankruptcy - Alternative Mortgage

So, you've actually decided to take the plunge? Here?s more good news. There are literally thousands of "alternative" lending sources in America. Also know as "B-C-D" lenders, these lenders provide mortgage financing for folks who can't qualify for conventional mortgages. The catch? Be prepared to pay through the nose - high rates and high fees.

The impact of bankruptcy directly affects your credit score. Most lenders use your credit score as their primary way for evaluating the level of risk you pose to them. With a bankruptcy behind you, your credit history suggests that you are a high risk to the lender. The lender will be compensated for absorbing this risk by charging you higher rates and higher fees.

The other thing to keep in mind is that alternative mortgage programs have very specific underwriting criteria. What does that mean? Well, the underwriting criteria are the basis on which loans will be given. As a result, your loan will either be approved or rejected because you loan application did or did not fit the program requirements.

If you don?t fit the requirements for one lender, do continue to check with others. For example, one loan program may require at least 20 percent down, credit scores of 580 or more, and no late payments on your rental history for the last 12 months. Another loan program may have the same requirements, but will allow a credit score to 560. Think of each loan program as a mold. Your loan application must fit into that mold for it to be approved. If one mold isn't for you, find one that is!

So, having said that, the best way to determine whether or not you are eligible for mortgage financing is to consult with a good mortgage broker who is experienced in mortgage after bankruptcy. A mortgage broker can collect your data, check out your financial situation and then shop around for alternative programs that will accept your application.

One point of interest to keep in mind: A person in a Chapter 13 bankruptcy who is meeting the terms of repayment will have an easier time re-establishing credit than someone who discharged debts in a Chapter 7 bankruptcy.

Posted by TheBlogMachine.com at 10:53 AM EDT

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Bankruptcy - A Mortgage Loan

Are you ready to buy a home, post bankruptcy? Start by determining how much house you can afford. This is critical. You don't want to get into the same money squeeze as you were in before. Including principal, interest, taxes and insurance, it?s a pretty safe estimate that you can afford to pay a mortgage equal to 20% of your pretax income.

Lenders will often pre approve you for up to 28% of your pretax income, but you're best to avoid this temptation. Let?s work out the numbers: with $50,000 in annual pretax income, your lender will likely approve you for a monthly mortgage payment of $1,150. That?s 28% of your monthly income, and it would allow you to qualify for a $150,000 mortgage. At 20% of your pretax income, however, your mortgage payment would be a more manageable $833. This would mean a $120,000 mortgage. This kind of thinking ensures that you leave yourself some available income for emergencies. Let?s face it: the car breaks down; the kids need braces; and life often throws us a curve.

In general, once you know how much house your lender thinks you can afford, shop for houses that sell for about 15-20% less than the lender?s estimate. This is another way to ensure that you are protecting your financial future.

When you talk to lenders about pre-approval, don't try to hide your bankruptcy. However, be sure to also show them the great job you've done rebuilding your credit in as short a time as possible. You have to remember that a Chapter 13 bankruptcy stays on your credit report for seven years, while a Chapter 7 bankruptcy stays on your credit report for 10 years. It?s best for you to get used to handling questions regarding your bankruptcy with confidence and a straight-ahead approach.

When you apply for a mortgage after a bankruptcy, you won't generally qualify for the best rates. Typically, lenders will consider loaning you money again when it has been at least two years since you filed for bankruptcy and you've stayed current on your bills over that period. That has to be a critical piece in your building of a new financial stability.

One point of interest to keep in mind: A person in a Chapter 13 bankruptcy who is meeting the terms of repayment will have an easier time re-establishing credit than someone who discharged debts in a Chapter 7 bankruptcy.

Posted by TheBlogMachine.com at 10:50 AM EDT

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Mortgage After Bankruptcy

If you've had the unfortunate experience of going through a bankruptcy, here's some good news: there is "life" for your credit score, post bankruptcy!

One of the best things you can do, first and foremost, is rebuild and repair your credit score. After a bankruptcy, your credit score will be quite low. As this 3-digit number is what most lenders use as a critical part of assessing your qualifications as a borrower, it's important to get it moving in the right direction (higher) as soon as possible.

One of the ways that you can get your credit repaired is to get credit! Amazingly enough, almost anyone can get credit relatively soon after a bankruptcy. But you need to know how. A mortgage is not generally the right place to start; you'll be able to get one a bit later, after you've done some footwork.

Even if you have had a bankruptcy, there are mortgage lenders who will give you a "secured" credit card. This is a great way to start. You may be able to get one with as little as $200 in an account to guarantee payment of the card. (This is what makes the card "secured".) Your spending limit will equal the amount of money that you have put up as guarantee. Interest rates are likely to be high on such cards. Use the card for the occasional purchase. Those purchases should amount to about 30 % of your limit and no more. It's wise to pay off the balance on time. (You don't need to carry a balance to build your credit score.) This simple and no-nonsense approach will start your credit score heading up.

Don't be seduced into any secured card. Pick one with no application fee and a reasonable annual fee. Make sure the card issuer reports regularly to the credit bureaus; call and ask! After all, you are doing this to build your credit score. Also, your secured card should convert to an unsecured card after 12-18 months of on-time payments. After all, you've provided a track record of good payment.

Speaking of credit bureaus, ensure that your credit history is accurate! While the bankruptcy itself may remain on your record for up to 10 years, that doesn't mean that all the problems that led to the bankruptcy should stay on your report. If your report shows accounts that are open and overdue (when they have been "closed" by virtue of your bankruptcy), make sure those entries are removed. You'll have to contact the credit bureaus to do this; when you do, insist that old accounts be properly reported as "included in bankruptcy". At the same time, make sure that any other errors are cleared up, and that your current contact information is correct.

Another simple strategy? Open a savings account, and save 5% of your pay. Savings will also help build your credit score, and will also provide you with a cushion of money in case of emergency.

The other thing that will build your credit score is an "installment loan". As a result, a car loan can help you build more credit-worthiness. Just be prepared to pay astonishing rates of interest at first. You might start out with interest as high as 20 % or more. Given that, only buy the most affordable vehicle, and consider trading it in early. By the time you've established a good payment record on your car loan for a couple of years, your interest rate will drop substantially.

If you don't want to pay punishing rates on a car loan, you can go directly to a mortgage, once you have done some credit repair with a secured card and a good payment history on your other bills, such as your utility bills. (Most utility companies do report to the credit bureaus.) If your next move is a mortgage, there are lenders who will work with you. They are sometimes referred to as "B-C-D" lenders. But again, be prepared to pay high fees and high interest rates.

You'll do better if you have as large a down payment as possible, but don't despair. Different B-C-D lenders will have different programs, and while you may not qualify for one, you could be perfect for another.

If you are ready for a mortgage, make sure your housing costs are affordable. This is your best bet for avoiding bankruptcy again in the future. You might even want to buy a little less house than you could, and put away a bit of money each month for those unexpected emergencies that can push a solid financial footing over the edge.

Posted by TheBlogMachine.com at 10:43 AM EDT

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