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The recession impacted millions of families at the turn of the last decade, and millions of people have spent years trying to improve their credit scores after the downturn. Repairing credit isn’t the easiest thing to accomplish after experiencing problems like bankruptcy, credit card cancellation, and defaulted loans.

What many families, couples, and individuals don’t realize is that they can still apply for home loans even after undergoing a bankruptcy. New types of loans, assistance programs, and refined approval processes have made it possible for people with past credit problems to qualify for new loans.

The FHA “Back to Work” Program

fhaThe Federal Housing Administration (FHA) is a government agency that publishes guidelines for banks that wish to provide federally insured mortgage loans to borrowers. The FHA has made recommendations regarding mortgage loans due to the severe economic impact the “Great Recession” had on borrowers.

According to an official release from the Department of Housing and Urban Development (HUD), the agency has recommended that borrowers be considered for loans even if they’ve experienced an “Economic Event” like bankruptcy and can provide documentation on it. Borrowers interested in getting an FHA-insured loan must meet three conditions.

  1. The credit problems caused by the recession were due to a loss of employment or an issue that was beyond the control of the borrower to prevent or avoid.
  2. The borrower has fully recovered from the Economic Event and has regained financial stability since the bankruptcy, foreclosure, or other financial problem.
  3. The borrower has undergone and completed housing counseling to ensure the borrower has gained the knowledge necessary to understand loan obligations.

It’s important to understand that late payments spread out over many years would reduce the likelihood of an applicant’s approval under the “Back to Work” program. It’s important for borrowers to investigate the programs available through FHA-sponsored programs since the availability of the agency’s programs tends to change each year.

Obtaining Healthy, New Credit Accounts

After bankruptcy or a home foreclosure, many former homeowners have limited credit available. Some families actually experience a total loss of credit with no active credit cards, loans, or mortgages. To increase the likelihood of loan or mortgage approval, it’s important for borrowers to begin rebuilding credit with a new credit card.

A borrower with an extremely low credit score might not be able to gain approval for the best cards, but there are usually some options for people with very low credit scores. The cards usually don’t come with any bells and whistles, and their credit limits are often limited, but every borrower has to start somewhere in rebuilding his or her credit.

Eliminating Past-Due and Delinquent Accounts

scoreOne of the important parts of achieving a credit score that will result in loan approval is eliminating delinquent accounts from the credit report and getting past-due balances current. A borrower who wants to get approved for a mortgage or a car loan will face slim approval chances if there are any past-due accounts on the borrower’s credit report.

According to U.S. News & World Report, paying off past due accounts is one of the best ways to increase a credit score. Not only does having up-to-date accounts improve a credit score and lead to the opportunity for lower interest rates, but it also increases the likelihood of loan approval. Before applying for a new loan, it’s important to make sure all past-due accounts are paid.

Taking the Time to Improve a Credit Score

The best way to gain approval for a home loan, car loan, or other significant loan after a major event like a bankruptcy or foreclosure is to take the time to repair a credit score. Credit counseling and a discussion with a bank representative may also help.