How to Get a Mortgage After the Bankruptcy and Foreclosure

Anbarasan Appavu

Losing your home to foreclosure or having to declare bankruptcy can be detrimental to your health and finances. If you have ever filed for bankruptcy or experienced foreclosure, all is not lost. It is possible to obtain a mortgage and purchase a new home if you take the necessary steps.

Mortgage After the Bankruptcy and Foreclosure

At least seven years pass before a bankruptcy or foreclosure is removed from a credit report.

• You can begin to rebuild your credit if you pay your bills on time and keep your credit utilization ratio low.

• After two or three years, you could be eligible for a new mortgage. 

• After a bankruptcy or foreclosure, your interest rate will be higher than what you would have paid before your financial difficulties. 

• After a previous foreclosure, it is crucial to obtain a mortgage that you can afford.

Step 1: Review Your Credit Score Reports

Chapter 13 bankruptcies and foreclosures can remain on credit reports for at least seven years, whereas Chapter 7 bankruptcies can remain for up to ten years. Unfortunately, there is nothing you can do to remove these negative marks earlier. However, it is essential to monitor your credit reports during this period.

Examine your credit reports from the three major credit bureaus first. Verify that all of the accounts included in your bankruptcy filing are being reported accurately. If you went through a foreclosure, ensure that this is also reported accurately.

Next, search for errors and inaccuracies. Even a minor error can lower your credit score by a few points. If you discover an error, you have the right to dispute the information with the credit bureau that reported it. Equifax, Experian, and TransUnion all permit online dispute submissions.

If a credit bureau discovers an error or inaccuracy on your report, they are required to either correct it or remove it. Either could increase your credit score, which could increase your chances of obtaining a mortgage in the future. allows you to obtain one free copy of your credit report per year and available only in US.

Step 2: Rebuild Your Credit

Both bankruptcy and foreclosure can have a significant negative impact on your credit score, although over time their effects will diminish. In addition to correcting any errors on your credit reports, you can increase your score by taking some positive actions.

Some of the best ways to boost your credit scores over time include:

• Applying for a secured credit card as well as making on-time payments

• Maintaining a low credit utilization ratio on any credit cards you may be using after bankruptcy or foreclosure

• Applying for a secured or unsecured credit builder loan in order to establish a positive payment history

It is crucial to avoid late payments after a bankruptcy or foreclosure, as they can harm an already low credit score. Also, exercise caution when applying for new credit cards or loans, as each inquiry can lower your score by a few points.


Before applying for a credit card or a loan, check to see if your payments would be reported to the credit bureaus, which could help your score.

Step 3: Establish Consistent Income

Maintaining a stable income after a bankruptcy or foreclosure is crucial for a number of reasons.

First, it's a chance to increase your savings. When you are ready to try purchasing a home again then you can establish an emergency fund and begin saving for the down payment.

When you apply for a mortgage, a steady income can make you appear less risky in the eyes of lenders. In general, lenders favor homebuyers with lengthy employment histories and stable monthly income.

Remember that special rules may apply if you are self-employed or operate a business. In this situation, lenders may require at least two years of income history as opposed to one. Therefore, it is essential to keep accurate records of your income. This can include copies of W-2s, 1099s, and pay stubs.


Mortgage-qualifying income may include wages, salaries, commissions, self-employment income, dividends, alimony payments, and child support.

Step 4: Be Patient and Research Loan Options

If less than two years have passed since your debts were discharged through bankruptcy, you will be required to wait before applying for a mortgage. If your previous home was lost to foreclosure, you may be required to wait longer, typically at least three years.

You can use this time to improve your credit score while researching the requirements for various mortgage loans. Following a bankruptcy or foreclosure, you may be eligible for the following types of loans:

• Conventional loans

• Federal Housing Administration (FHA) loans

• United States Department of Agriculture (USDA) loans

• Loans from the U.S. Department of Veterans Affairs

Each type of loan has different credit score, income, asset, and debt requirements. A FHA loan may be the best option for someone emerging from bankruptcy or foreclosure. It is possible to qualify for an FHA loan with a 3.5% down payment and credit score of 580 is needed. With a 10% down payment and a credit score as low as 500, you could buy a home using an FHA loan.

Expect to make a substantial down payment as well as pay a higher interest rate if you are applying for a new mortgage after a bankruptcy or foreclosure.

Step 5: Get Ready to Apply

After re-establishing good credit and the required waiting period, what is the next step? First, you should ensure that you have a sufficient down payment saved. The amount required can vary based on the loan. Again, FHA loans allow you to purchase a home with as little as a 3.5% down payment. USDA and VA loans not need down payment requirements. However, in order to obtain a conventional loan without paying private mortgage insurance, a 20% down payment is typically required (PMI).

Organizing specific documents can help you prepare for a mortgage. Among the items that a lender may request are:

1.    W-2s

2.    Pay stubs

3.    1099s

4.    Tax returns

5.    Bank statements

6.    Statements from the retirement or investment accounts

Keep in mind that if your credit score is still low after a bankruptcy or foreclosure, you will likely pay a higher interest rate on your loan. This, in turn, will impact the amount you can pay for a home. If you have had problems in the past, you probably don't want to overextend yourself with large mortgage payments.

A mortgage calculator is an excellent tool for budgeting these expenses.

Keep in mind that the lender might require a cosigner. Check with family members and close friends who might be willing to co-sign the loan for you. Remember that they will be responsible if you are unable to make the payments, which could destroy your relationship with them; therefore, you should only do this as a last resort.

How long does a foreclosure remain on credit reports?

A foreclosure may remain on a credit report for as long as seven years. In terms of negative credit effects, the initial two to three years following a foreclosure are typically the most detrimental. The impact of foreclosure on credit scores can gradually diminish over time.

Can a home be purchased after foreclosure?

You can purchase a home after a foreclosure, but you must first get your finances in order. Rebuilding your credit, saving for a down payment, and, as a last resort, securing a co-signer can help you prepare for purchasing a home.

What occurs following a bankruptcy and a foreclosure?

It is possible to file for bankruptcy and prevent the bank from foreclosing on your home. Depending on the type of bankruptcy and the amount of equity in your home, you might be able to keep your home if you declare bankruptcy. Obviously, if your home goes into foreclosure and you subsequently declare bankruptcy, you could lose your home.

The Bottom Line

At some point in their lives, a large number of people experience financial ruin and end up with a bankruptcy or foreclosure on their credit report. If this has happened to you, it does not mean you must abandon your desire to own another home. You may only need to delay the dream temporarily. You can use this time to improve your credit score and save for a down payment.


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