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Bankruptcy may lead to new mortgage in less time

On Behalf of | Sep 11, 2017 | Blog

Many New York residents fear the thought of bankruptcy. The concern often stems from a belief that they will be unable to gain any credit for 10 years.

However, those antiquated thoughts may no longer apply in today’s world of debt and bankruptcy. In fact, the ability to get credit and even secure a mortgage relatively quickly following a bankruptcy discharge is not an illusion.

Mortgage availability in less time

As reported by the New York Times, many who file for bankruptcy may be able to refinance a mortgage or obtain an original mortgage in about a year, if they are able to move forward and improve their financial picture after the bankruptcy discharge. In fact, Federal Housing Administration backed loans are available a year after a Chapter 13 bankruptcy discharge.

While other mortgages may only be available after two to four years following a Chapter 7 or a Chapter 13 filing, this impact is far less than the 10 years some people have been imagining. Moreover, many would-be homebuyers may use that two-year window to save up a meaningful down payment. Savings are far more achievable once the bankruptcy allows them to keep more of their paycheck. The paycheck is no longer going to pay those high-interest, high-minimum payment credit card bills that enjoyed a discharge.

Efforts to improve financial picture

In addition to saving for a down payment if they wish to buy a home after bankruptcy, filers will want to show an improved financial picture and financial responsibility. They can do this by paying rent, utility bills and car payments on time. People can also quickly get a secured credit card, which helps improve credit. Shortly thereafter, they can get low-limit credit cards. Experts suggest using those credit cards regularly with timely payments to help improve the credit score.

The fear of being unable to secure a mortgage post-bankruptcy may very well be an unfounded one. If there is a limit to financial wherewithal due to too much debt relative to income, it may be likely that a mortgage would never have been possible anyway. This is particularly so because of the need for a sizable down payment the would-be buyers simply cannot save up for because of their existing debt load. A bankruptcy that results in keeping much more of the paychecks for savings can be just what is necessary for improved prospects for a future mortgage.