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How To Get A Mortgage After Being Bankrupt

MORTGAGES | 20.07.2022

When debts become unmanageable, one option is to declare yourself bankrupt as it allows you to become free of debt. But how does this affect getting a mortgage in the future?

What Is Bankruptcy?

When debts become unmanageable, one option is to declare yourself bankrupt as it allows you to become free of debt. Declaring yourself as bankrupt serves to take the pressure away if you are unable to pay off your debts, but is considered one of the most severe forms of debt management.  If you’ve got a history of bankruptcy, you may be worried about how long you have to wait to get a mortgage. The good news is, that it is definitely possible.

How Long Do I Have To Wait To Get A Mortgage After Being Bankrupt?

After declaring yourself bankrupt, you won’t be in a position to apply for a mortgage or any type of credit before discharge. Discharge is when you are freed from any debts that were included in your bankruptcy, but you will still need to pay any debts bankruptcy doesn't cover.  This can usually take up to 12 months, but in some cases can be less. Once discharged, you may still find it difficult to get credit, or for any lenders to start to trust your creditworthiness for several years, so it is likely that your options will be limited.  Some lenders may consider your application as soon as you have been discharged, but you will need a mortgage broker to present your application well and you will be subject to higher rates than if you were to wait until your credit score has improved. 

What Can I Do To Help Myself Secure A Mortgage After Bankruptcy?

The good news is that there are several things that you can do to help yourself have the best chance of securing approval for a new mortgage in the future, despite being bankrupt in the past.

Check Your Credit Reports 

As an aspiring homeowner, you should be checking your credit reports regularly. If you notice any errors in your details you can apply to the credit report agencies to get the information amended. Having no credit history at all can be seen as problematic for lenders, so taking on a small amount of credit, and making sure you pay it off each month religiously, can be a good idea.

Rebuild Your Credit Score

Speak to a professional to help determine if you are currently eligible for a mortgage or not. If you are not currently eligible it doesn’t mean that this will always be the case, but it may mean that you need to take steps to prove your creditworthiness. Your mortgage advisor should be able to help you with the steps you need to improve your individual credit score.

Determine Eligibility

Discussing your options with an experienced professional can help you to understand your current position, and devise a plan to help you obtain the right mortgage for you, at the right time. An advisor will be able to help you understand whether or not you qualify for a mortgage with your current circumstances, and help you be aware of and implement any changes you should make to boost your eligibility. 

Save For A Deposit

Saving for a deposit is a crucial part of securing a mortgage under any circumstances. However, when trying to get a mortgage after bankruptcy, it is often extremely helpful to offer a more substantial figure up-front to improve your chances of being approved by a lender. 

Expect Higher Interest Rates 

As many lenders will see you as a high-risk borrower, they will want to protect themselves by securing a higher return on the amount that you have borrowed from them. Expect high-interest rates and factor them into your affordability calculations to help you build a realistic view of your application journey, and to avoid disappointment from building unrealistic expectations. 

Close Dormant Accounts. 

If you have any open credit accounts that you no longer use, try to close them as soon as you can. When lenders look into how much you currently owe, they may also look at how much credit you have available to you. Lenders often prepare to see a small number of well-managed credit accounts, rather than many active, but unused accounts.    As more time passes, your bankruptcy becomes less relevant, and this means you will slowly be offered more competitive rates, terms and fees by future lenders. A few years may seem like a long time to wait for competitive rates, but using the time to improve the status of your credit file will help you secure the best deal for you in the long run. 

Can I Get A Mortgage After Bankruptcy With Other Credit Issues?

When applying for a mortgage with a history of bankruptcy, lenders will often want to see a clean credit history since you were declared bankrupt. This will often be a condition of approval. Before starting your mortgage application, you should make sure any outstanding debts are paid in full. Any credits that have appeared since your bankruptcy, such as debt management plans or CCJs, will make it harder to get accepted for your mortgage.  If you are an ex-bankrupt, you may feel anxious about what your borrowing options are. Our mortgage experts are here to help you determine the best steps for you to take to find you the right mortgage, from the right lender, at the right rate.   
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