Bankruptcy and Credit

• It's no secret that filing bankruptcy has a huge negative affect on your credit score. This one negative items blemishes credit report for one decade, and after filing bankruptcy, credit scores are known to drop more than 100 points, says the Consumer Credit Counseling Service. This puts you in the subprime category for credit cards and loans, and getting any type of financing immediately after a bankruptcy can prove challenging. Aside from rejections, a recent bankruptcy can trigger higher interest rates for auto loans and other loans, and lenders may require a co-signer with your application.
  
  

FHA Home Loans

• Some mortgage providers require people with bankruptcies to wait four or five years before qualifying for a new mortgage. But FHA mortgage loans do offer approvals in a shorter period. These loans are insured by the Federal Housing Administration, and as a federally insured loan, a bankruptcy doesn't ruin your chances of approval. Stipulations do exist. For example, you must wait at least two years after filing bankruptcy, and credit reports must show a perfect credit pattern since the bankruptcy. This includes timely payments, no charge-offs and no collection accounts.
  
  

Benefits of a Mortgage

• New credit after a bankruptcy can help improve your score. Getting an FHA mortgage loan and paying on the mortgage each month is sure to help your low score. FHA mortgage approvals only require a 620 credit score (increased from 580). The average mortgage loan with a conventional lender requires a 680 or higher score. Acquire an FHA mortgage two years after bankruptcy, pay your mortgage on time, and within a few years, you can reverse damage caused by a bankruptcy. A high credit score may prompt future lenders to overlook or consider the bankruptcy a thing of the past.
  
  

Other Requirements

• Getting FHA financing isn't simply a matter of waiting two years and having a 620 credit score. Meet the other requirements, such as having a down payment of at least 5 percent for the mortgage loan. Show at least two years of tax returns to provide evidence of steady income, and select a home with a mortgage that's no more than 30 percent of your gross monthly income.