Congratulations on completing your bankruptcy! Now it’s time to begin rebuilding a financial foundation that helps you feel more secure. One of the ways you’ll do that is to consider using loans to help increase your credit score.
The thing is that you’re not sure if lenders will be willing to do much for you right now. It’s true that some lenders will take one look at the bankruptcy information on your credit reports and show you the door. Other lenders will not take that approach. In fact, they’ll be happy to extend financing in the form of bankruptcy loans that will help you begin increasing those credit scores. Here’s some information that will help you prepare for submitting that first application.
The Time That Passes Between the Discharge and the Loan Application
How long has it been since your bankruptcy was discharged? If it was in the last couple of weeks, finding a lender may be difficult. When it’s been somewhere between three months and a year since the discharge, you stand a better chance of being approved.
Waiting until at least three months after the discharge provides you with another perk: more lenders ill be interested in doing business with you. While there will still be some who won’t be interested, lenders who already have solutions for people with imperfect credit or recent financial setbacks on their credit reports will accept your application and give it full consideration.
Does That Hold True for Mortgage Loans Also?
You may be wondering if there are any limits on the type of loan you can seek. The answer is no. While the options may be less plentiful, there are even lenders out there who will consider applications for mortgage loans. As with any other type of financing, do check in advance and see if you meet the basic qualifications. You’re likely to find some reference to recent bankruptcies. That reference will include an idea of whether someone fresh out of bankruptcy has a chance of being approved or if you need to wait a few more months.
What’s This Talk About TDS GDS and LTV Ratios?
As you look around for mortgage loan offers, you may see references to TDS, LTV, and GDS. Those terms refer to Total Debt Service ratio, Loan to Value ratio and Gross Debt Service ratio. Don’t let the terms scare you. Once you understand what each one means, it’s easy to see if you’re in a range that the lender finds acceptable.
The GDS requires coming up with a total for your monthly housing cost and dividing that figure by your gross monthly income. Multiply the resulting figure by a hundred and that will give you your GDS. Many lenders look for a ratio of 35% or less, although you will find some that will still consider the application if you’re a little over that amount.
The TDS is also easy to calculate. Instead of focusing only on your housing expenses, total all of your monthly costs and divide it by your gross monthly income. That figure is also divided by as hundred. Many lenders are fine if the TDS is 42% or lower. Since the recent bankruptcy discharged most of your debt that was not related to housing expenses, you should have no trouble with this ratio.
If you see some reference to the LTV ratio, that has to do with the relationship between the loan amount to the value of the asset that you hope to purchase. Most lenders will want the LTV to be 80% or lower, although you may find some high-risk lenders who will still work with you if the rate is slightly higher.
How About Personal Loans?
Perhaps you’re not interested in buy real estate right now. The idea is to secure a loan that you can pay off in a relatively short period and begin accumulating positive comments on your credit reports. Personal loans are good for that type of activity.
A personal loan doesn’t necessarily mean obtaining financing from someone that you know. It can also be a loan from a group of investors or some other company that’s considered a non-traditional lender. If you go this route, do make sure that the lender will report your prompt loan payments without fail.
Lenders and Your Credit Reports
It’s natural to assume that any lender will want to review at least one of your credit reports. It may surprise you to learn that some of the lenders who are willing to review your applications may not look at the reports at all. The focus will be more on proof of your income, the amount you want to borrow, and your ability to make the payments without hardship.
For any of these post-bankruptcy loans, do expect lenders to require that you generate a minimum amount of income each month. The income sources and the amount will vary somewhat, so don’t get discouraged if you don’t meet the requirement set by a particular lender.
Remember that there are plenty of lenders who off options designed to supply people with the money they want and help them rebuild their credit at the same time. While you may have to pay a little more in interest rates this time, the right type of bad credit personal loan or bad credit mortgage will have you on the way to better days. Choose wisely and see how things look this time next year.