After your bankruptcy is discharged, you have to prove yourself to lenders that you are able to satisfy repayment obligations of a loan. You instill confidence in lenders that you are able to fulfill the loan obligations; this rebuilding phase is attached to all forms of credit or financing, including credit cards, auto loans, personal loans etc. Typically, a mortgage after bankruptcy will not be offered until you have demonstrated responsible borrowing practices (paying your bills/loans on time and consistently) for at least 2 to 3 years.
A financial institution will not offer a mortgage to you, immediately following the discharge of a bankruptcy filing. A bankruptcy—which is documented on a credit report as a “court judgment”—will diminish your credit score by 50-100 points (the drop is elastic to the amount of debt latent in your filing). That being said, mortgage after bankruptcy will be administered once you have demonstrated a willingness and ability to meet your debts. The ability to secure a mortgage after bankruptcy is purely up to the discretion of the lender. However, the lender’s discretion is widely proportional to your credit score. So, a mortgage after bankruptcy can be obtained if you have effectively rebuilt your credit score.
Rebuilding your Credit after Bankruptcy:
Rebuilding your credit after bankruptcy is a slow process—a mortgage will not be offered after bankruptcy until you have demonstrated at least 2-3 years of habitual payments to your creditors. These payments must be on time; late payments will be reflected on your credit profile.
In addition to paying your debts on time, you must also exhibit prudent borrowing practices. Do not over-extend yourself after bankruptcy; your credit to debt ratio must be kept at bay for you to receive a mortgage after bankruptcy.
To effectively rebuild your credit you must take out loans or lines of credit after your bankruptcy is discharged. Note: the variables (interest rates and fees) attached to these loans after bankruptcy will be undesirable—a lender mitigates risk through the attachment of fees or high interest rates. It is imperative, to prove yourself to lenders, that you establish new lines of credit. You must show lenders going forward, that you have done a suitable job managing your credit.
In limited cases, you may be approved for mortgage after bankruptcy a year after your bankruptcy is discharged. This timeframe is rare; however, and will depend on your credit rating before you filed for bankruptcy.