What if I have had a Bankruptcy or Foreclosure in the past? Will that disqualify me from getting a home loan?
No it will not disqualify you but there are some restrictions and waiting periods depending on a few things.
|Loan Type||Chapter 7 BK*||Chapter 13 BK**||Foreclosure***|
|USDA||3 years||12 months||3 years|
|VA||2 years||12 months||2 years|
|Conventional||4 years||2 years||7 years|
|FHA||2 years||12 months||2 years|
*From Discharge Date with re-established credit.
**Payment plan with all payments made on time.
***From the date of the Foreclosure Deed
Credit must be re-established after the Bankruptcy and/or Foreclosure, AND middle credit score for all borrowers must be at least 640.
How long does it take to repair my credit?
The use of credit scores makes credit application reviews more efficient for lenders and makes instant credit approval possible. Before credit scores, lenders manually looked over each applicant's credit report to determine whether to grant credit. This method was time consuming, costly and human judgment was prone to mistakes and bias. The use of credit scores eliminated personal bias from the approval process since your race, religion, gender, age, marital status, political affiliation or any other personal characteristics are not factors in credit decisions.
A lender will look at your income and your total debt to get a picture of what your financial status is like. They will look to see if you can effectively handle the additional costs associated with owning a home. If you end each month without any money left in the bank, or if you are having trouble making your credit card minimum payments every month, you will have trouble getting a loan compared to someone who makes all payments on time and has money left at the end of each month.
Lenders will look to see what sort of assets you currently have (car, boat, home, etc.). They will then look at what is paid off and what loans you are still paying off. The more assets you have that are paid for, the better you will look to a lender. This shows you are responsible and have demonstrated the ability to make monthly payments. It also means that you have things you can sell off for money in case you run into problems. This is added security for a lender since they know there are other sources to collect on in the event of something unforeseen happening to the borrower.
Make sure you keep track of your balances and do not overdraw and bounce checks.
Record every check, deposit and withdrawal in your checkbook register. Compare the register to your bank statement frequently. The more often you balance your checkbook, the less likely you will be to bounce a check.
Make sure you pay your rent, utility and insurance bills on time every month. Every late payment is a bad mark on your credit. Don't charge more than you can afford. Try to pay off the balance every month, especially if you have a department store card. If you must use more than one credit card, keep both cards well below their limits. If your bank offers online bill payment, sign up for it. This is usually a far more reliable way to pay your bills and will keep you from having late payments because the check got lost in the mail.
Fact: Lenders use a number of tools to determine whether or not they will loan money to someone, such as the amount of debt you can handle given your income, employment stability, and bill payment history. A good credit score certainly helps, but if you do not have traditional credit history, there are other avenues a lender can explore to assess your credit worthiness.
Fact: In the past this was true; however, many of today’s lenders realize that there is a large number of American consumers who do not believe in using debt for purchases. Just because these people do not have a traditional credit history does not mean they are not credit worthy. By checking such items as rent payments, utility payments, savings history and checking account status, a lender can get just as good a risk assessment of a buyer as they can with a traditional credit score