Majority of home buyers would need a housing loan to finance their purchase. It is probably a little more difficult to organize a mortgage loan in case you have suffered a bankruptcy in the past. However, some amount on financial planning, discipline and cash flow management can go a long way in helping you tide over the crisis of a past bankruptcy and make you a successful applicant for home loans. The lending institutes review the credit score and financial strength of the applicant to assess his repaying capacity and hence the eligibility of a loan. Most routine of these tests involves checking whether the applicant has filed a Chapter-7 or a Chapter-13 Bankruptcy in the past. It is essential to understand the difference between a Chapter-7 and Chapter-13 bankruptcy. A chapter-7 bankruptcy necessitates the sale of non-exempt assets of the debtor by the lender to recover the amount owed to him. A Chapter-13 bankruptcy on the other hand involves restructuring of the defaulter's loan repayment schedule to help him tide over his financial crisis. A Chapter-7 bankruptcy filing has certainly a far more dent on one's credit score and his ability to avail loans in future. It is however beyond doubt that one can successfully emerge out of either of these bankruptcies to build a case for availing a home loan by making a note of essential points discussed in the following section.
The most important point to consider is that one must let some time lapse before applying for a mortgage loan. Most financial planners would suggest a 2 year time lag from the date of filing a bankruptcy before you submit documents for a fresh mortgage loan. The idea is to rebuild your financial credibility and credit score during this time period. Ideally all payments related to credit card outstanding and any other loan must be paid in time during this time period. You must avoid large spending on your plastic which shall force you to revolve your credit. You should indicate a large % of your own equity contribution towards house purchase to make your case stronger. The whole purpose is to let the lender know that you have regular and periodic cash flows which shall allow you to make periodic payments. The way you manage your finances and cash flow during the intermittent period would help the lending institute in determining whether you have you have become wiser in cash management after suffering a bankruptcy. Your credit score improvement is a slow and gradual process. It is however important for the lending institute to be assured that the declining trend in your credit score has been arrested and it has started to show some improvement as well.
You may seek the professional help of experts who specialize in organizing mortgage loans for individuals who have to deal with bankruptcy in their application. You would find a host of cases around you who have emerged stronger and wiser after their bankruptcies. Start working on your credit score today for a better tomorrow.
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Author: Lokesh