Does bankruptcy affect your home mortgage loan approval?

Bankruptcy is deemed to be a credit-killer during times of credit crunch. When you’re going through a credit crunch and you’re worried about paying your debt obligations on time, you often think of filing bankruptcy as this is perhaps the best way to start afresh. But do you have a slight inkling of the fact that bankruptcy can kill your credit score and make you unworthy of getting new lines of credit in the future? If you want to take out a mortgage loan when you’ve already filed bankruptcy, you have to be very careful about taking out your mortgage loan as the rates that will be charged will be very high. Taking out a mortgage loan within your means is very important lest you need to go for loan modification in the long run. Have a look at some steps that you need to take in order to get a home loan post bankruptcy.

  • Pull out a copy of your credit report: The first step that you need to take is to pull out a copy of your credit report so that you may get to know what the credit bureaus are saying about you. As you’re entitled to a free copy of your credit report, you should get one so as to check your credit score. Check the negative listings, dispute them and try to improve your credit score in the long run.
  • Repay your unsecured debt obligations: Unsecured debt obligations not only raise your credit score but also lower your DTI ratio. When you go to a lender to take out a mortgage loan, he will check your DTI ratio so as to check the total amount of debt obligations that you pay in a month and whether or not you can pay the monthly mortgage obligations on time. If you want to take out a home loan at an affordable interest rate, you should lower your DTI ratio.
  • Get multiple quotes from multiple lenders: As you already have a bad credit scoreyou should get multiple quotes from multiple lenders so that you get the opportunity to take out the best mortgage loan in the market. Get at least 5-6 quotes so that you can easily compare and contrast the terms and conditions in order to make the best choice. The term of the loan, the monthly payments, the interest rates and the closing costs should all be taken into consideration while choosing the loan.
  • Save enough money for down payment: When you have a poor credit score and you want to take out a mortgage loan within your means, you need to save enough money so that you’re able to make the required down payment on the loan. The lenders usually ask for a down payment of at least 20% of the loan amount and if you’re not able to pay this amount, you may be subject to PMI or Private Mortgage Insurance that will unnecessarily increase the monthly installments.

Therefore, if you’ve filed bankruptcy, don’t be scared about the prospects of taking out a mortgage loan. Follow the above mentioned steps in order to be sure about the chances of getting a mortgage loan that may be suitable to your wallet and to your affordability. However, getting a loan above your means may make you opt for mortgage modification in the long run.

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