How To Restore Your Credit After A Bankruptcy And Obtain A Home Mortgage - part 2
by Anthony Kirlew
If you pay with cash or money orders, please stop doing this immediately and start paying with checks. Simply put, this is hurting you because by filing a bankruptcy you have already shown some financial instability. Paying your rent with cash or money order shows further financial instability and will not give you the positive rent history that the underwriter is looking for to give them the confidence in approving your loan.
5. Apply for a secured credit card - A secured credit card allows you to make a deposit into an account to secure a credit card and then borrow against it to establish a new positive payment history. As time progresses, the bank may increase your credit line to an amount greater than your deposit, and then eventually return your deposit to you. (They will also often pay you interest on your deposit.)
6. Prepare "non traditional" trade references - These are accounts that you pay on such as cell phones, car insurance, and store accounts which can be used to document a positive payment history, but would not be traditionally reported to a credit bureau. Ideally, if you can provide 3 of these accounts with a 12-month payment history, this will help us in convincing the bank that you are a good credit risk. The best way to document this is with a letter from the company stating that you have had a positive payment history with them for the past 12 months. Alternatively, you can provide 12 months of cancelled checks showing 12 months of timely payments.
7. Resist the urge (or encouragement) to buy a car. Some may tell you that this is the best way to rebuild your credit. The problem is that your interest rate will be so high, that your payments will make your debt ratios higher than normal, making it harder to qualify for a mortgage. Do you remember the figure of 45-50% of your monthly income that the bank will allow you to use towards your debts? This will quickly be absorbed by a car payment. Only buy a car if a) you NEED (not want) a car, and b) you have the income to cover the car payment, any of your current debts, and your proposed new car payment. We have seen SEVERAL people that have cars rather than homes because they went out and bought a car that they could not sell and their debt ratios were too high to qualify for a mortgage. It would be a shame to have a nice car (that depreciates daily), as opposed to a more humble car along with a mortgage on a home that gives you a tax break, and increases in value over time.
I hope this is helpful and helps get you on your way to finding the home of your dreams.
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