Take Advantage Of Aggressive Mortgage Programs That Help People Buy A Home Or Refinance After A Bankruptcy
In the last 10 years, the American dream of buying your own home turned into a nightmare for too many of us. During the housing crunch, more than seven million homes were foreclosed upon, and many Americans ended up in bankruptcy.
There are many misconceptions in the public about bankruptcy. One of the biggest is that you cannot buy a home for at least seven years after you have declared chapter 7 or chapter 13 bankruptcy. This is not the case at all. It is possible to get a mortgage after bankruptcy if you know where to look.
The most likely reason that this myth persists is that generally, a bankruptcy public record will stay on your credit report for up to seven years. This does not mean that you cannot buy a home again within those seven years.
If you want to buy a house after bankruptcy it is important that you get a plan. If you are ready to jump back in the housing market and recently declared bankruptcy, we would like to offer you these tips and ideas:
Bankruptcy And Mortgage What Happens To Your Mortgage After Filing
How does bankruptcy affect mortgage? A major concern for many homeowners contemplating;Chapter 7 or Chapter 13 bankruptcy in Houston;is whether they will lose the roof over their heads as part of the bankruptcy process.
The good news is that your mortgage company cannot raise your interest rate or change other terms of your loan as punishment when you file for bankruptcy in Texas.
Bankruptcy Exemptions In Newfoundland And Labrador
- Food and fuel required by you and your dependants for 12 months
- Clothing for you and your dependants up to $4,000
- Household furnishings and appliances up to $4,000
- One motor vehicle up to $2,000
- No limit on medical and dental aids for you and your dependants
- Items of sentimental value up to $500
- All pets are exempt from bankruptcy
- Up to $10,000 of equity in your home
- Tools of your trade or business up to $10,000
- Certain income and pension plans
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Can I Get A Home Equity Loan After A Chapter 13 Bankruptcy Discharge
A person who has had a Chapter 13 bankruptcy discharged can get a home equity loan. You will need to have kept your credit clean since the bankruptcy and have enough equity in your home. Your home equity loan bankruptcy option will be impacted by the type of loan you want.
Conventional lenders decide on loan policy for themselves and terms may vary. The impact of a Chapter 13 bankruptcy on your credit rating will probably not be as bad as that of a Chapter 7, but it will hurt the rating.
This may determine how much a lender will lend you. Instead of 80% of the value of the house, the Loan to Value ratio, they may lend a lesser amount.
The credit requirements for an FHA loan are less than those of a conventional loan, which will help you borrow more.
As for when you can get a home equity loan with bankruptcy on your record, that also depends on the type of loan youre getting. Conventional loans have a mandatory 2 year waiting period after a Chapter 13 bankruptcy discharge date, while FHA loans can be available 1 year after discharge.
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What Is A Leaseback
A leaseback occurs when a property owner sells their property but continues to stay in it by renting it from the buyer, often with an option buy the house back later.
The commercial world has used this investment strategy for a long time. Investors recognized that a property is more desirable if it already has a tenant in it that will sign a new lease.
Until recently, in residential markets, leasebacks have largely been used to accommodate the seller by letting them stay for a short term until their new home can be occupied.
Real estate investors have realized that a long term leaseback to the seller holds the same attraction for them as it did for their commercial brethren.
Home Equity Line Of Credit
A home equity line of credit allows you to borrow money on an as-needed basis from your homes equity. At the beginning of the loan, theres a draw period where youre only responsible for making interest payments. Once the draw period ends, the repayment period begins; youre responsible for repaying the principal and interest balances during this time.
To be eligible, lenders require you to have 15% to 20% equity in your home. Because your home secures the line of credit, lenders are usually able to offer lower interest rates.
If youre able to secure a lower interest rate, this can be a better option than a personal loan. However, keep in mind that, in the event that you default on the loan, the lender may foreclose on your home.
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Apply For A Refinance
When you apply, youll need to provide some documentation proving that you have a steady income and outlining any assets you plan to use to qualify for the loan, such as bank statements for a savings account.
At this stage, you may want to shop around and check rates with several lenders before making a decision, so you can get an idea of who has the best offerings.
How Do I Know How Much Equity I Have
You can calculate your homes equity by taking the value of your house, and subtracting the amount you owe on your mortgage and the currently owed property taxes from this value.
House value amount owed on mortgage currently owed property tax = Equity
In most personal bankruptcies, the home must be sold so that this equity value can go to your creditors.
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When To Opt For A Leaseback Agreement
When a homeowner who has a recent bankruptcy on their record needs cash, the equity in their home may be the only answer. Getting to those funds with a home equity loan will involve waiting a year or more, and will not get them 100% of their equity. It also creates new debt for them to service which hurts their cash flow.
Selling your home and leasing it back from the buyer will get you all of your equity quickly with no debt payments. This can be especially effective in helping you get back on your feet financially and buy your house back.
What if you are in a strong sellers market and want to take advantage of high home values but wont be able to qualify for a loan to buy a replacement home? A leaseback will let you sell when you can get the most for your home and buy later when you can get a mortgage loan.
Difference Between Chapter 7 And Chapter 13 Bankruptcies
The process youll go through to refinance after bankruptcy depends on the type of bankruptcy youve filed. Lets go over the differences between the main types of bankruptcy: Chapter 7 and Chapter 13.
- Chapter 7: Chapter 7, sometimes called a traditional bankruptcy, discharges your debts. A Chapter 7 bankruptcy might allow you to release certain types of debt, but you wont be able to wipe away things like student loans, child support and court-ordered judgments. It may also require you to liquidate some of your property. Chapter 7 bankruptcies stay on your credit report for 10 years.
- Chapter 13: A Chapter 13 bankruptcy doesnt get rid of all of your debt. However, it does allow you to restructure your debt and hang onto your property. This procedure may allow you to spread your payments over a longer period of time or only pay back part of your loan. Chapter 13 bankruptcies leave your credit report after 7 years.
You might have a much more difficult time getting a refinance if you have a Chapter 7 bankruptcy on your credit report. This procedure indicates to lenders that you havent been able to reach an agreement to pay back your debt with past creditors.
This makes you a much riskier borrower. Chapter 7 bankruptcies also stick around on your credit report for a longer period of time, which can negatively impact your .
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Debts Never Discharged In Bankruptcy
While the goal of both Chapter 7 and Chapter 13 bankruptcy is to put your debts behind you so that you can move on with your life, not all debts are eligible for discharge.
The U.S. Bankruptcy Code lists 19 different categories of debts that cannot be discharged in Chapter 7, Chapter 13, or Chapter 12 . While the specifics vary somewhat among the different chapters, the most common examples of non-dischargeable debts are:
- Alimony and child support.
- Certain unpaid taxes, such as tax liens. However, some federal, state, and local taxes may be eligible for discharge if they date back several years.
- Debts for willful and malicious injury to another person or property. âWillful and maliciousâ here means deliberate and without just cause. In Chapter 13 bankruptcy, this applies only to injury to people; debts for property damage may be discharged.
- Debts for death or personal injury caused by the debtorâs operation of a motor vehicle while intoxicated from alcohol or impaired by other substances.
- Debts that you failed to list in your bankruptcy filing.
Whats The Difference Between A Bankruptcy Filing Date And A Discharge Date
The filing date is the day you file a petition with your local bankruptcy court. The discharge date is the day youre no longer liable for the debts included in your bankruptcy. This date could be a few months after the filing date or several years later, depending on whether you file Chapter 7 or 13.
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What Is A Home Equity Loan Anyway
Before we go any further, lets review what happened when you took out that home equity loan. For something that sounds so simple, it can get a little confusing.
The most important word in home equity loan is equity. Simply put, equity is the difference between what your home is worth and what you owe on your mortgage. You build up equity in two ways, one you can control and one you cant. Make those monthly payments and maybe add a little bit, and you build up equity. Another way: The real estate values in your area go up.
When you take out a home equity loan, you receive a lump sum of cash that you pay back at a relatively low-interest rate . But heres the problem: The collateral for that loan is your home itself.
A home equity loan creates a lien against your house. Liens are legal obligations you make, allowing a creditor to seize the assets you put up as collateral. So, if you dont pay back that home equity loan, you can easily lose your house.
It gets worse: If you want to sell your home while you still have that loan, you must pay off the entire balance first.
Ways To Buying A Home After A Bankruptcy
By Bryan Dornan
Typically after recovering from bankruptcy people ask me how long it will take to qualify for a mortgage loan, refinance, home equity loan, or home improvement loan after bankruptcy or how long after bankruptcy to buy a home. Banks and mortgage lenders understand that it is normal for good people to go through financial hardships and thats why they extend credit opportunities with new mortgage programs after a bankruptcy. Its not always easy to find them, but there are a handful of banks and mortgage companies that offer affordable financing to people looking to buy a house after bankruptcy.
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Can You Refinance Your Mortgage After Bankruptcy
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Fha Loans Are Subject To Rules For After
Its entirely possible to get an affordable government-backed FHA loan for a refinance after declaring Chapter 7 bankruptcy, but youll need to do three things: Wait two years after your discharge, re-establish good credit during that time and avoid taking on more debt.
Its also possible to become eligible for an FHA loan after just 12 months. However, youll need to prove your bankruptcy occured due to circumstances beyond your control, and youll also need documentation to show youre now managing your finances responsibly. Your lender will have to vouch for you on paper that the bankruptcy is unlikely to happen again.
To get an FHA loan after filing a Chapter 13 bankruptcy, youll need to show you made full, on-time mortgage payments for at least a year under your repayment plan, according to the U.S. Department of Housing and Urban Development. Youll also need to get written permission from a bankruptcy court.
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Understanding Bankruptcy And Home Equity Loans
Bankruptcy, a legal procedure for people who cannot pay their debts, allows consumers to eliminate their debt or restructure it to make repayment possible. Filing for bankruptcy offers an opportunity to regroup and get a fresh start on your finances.
Bankruptcy will impact your credit history and your credit score, which in turn impacts how soon you can get a line of credit after bankruptcy. A Chapter 7 bankruptcy will stay on your credit report for up to 10 years, while a Chapter 13 bankruptcy will stay on your credit report for up to seven years. The impact on your credit score depends on several factors, including your score before bankruptcy. For example, if you had a high credit score, you should expect to see a bigger drop than someone with a lower score who had existing negative marks on their credit report.
If you were able to keep your home after bankruptcy and have equity in the property, you may be able to access that equity to improve your finances. You typically have three options to tap into your home equity after bankruptcy: cash-out refinance, home equity loan and home equity line of credit.
Reaffirmation Of Home Loan
In either bankruptcy case, you are allowed to keep your home as long as you can prove you can continue to make payments. You often sign a “reaffirmation of loan” with your lender. This is a promise that, in spite of your financial distress, you will continue to pay your loan per the terms of the contract. The reaffirmation itself doesn’t negotiate the debt down, change interest rates or otherwise refinance. While most lenders require the reaffirmation, there are situations when this isn’t signed.
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Is There A Simpler Option Than A Home Equity Loan In A Bankruptcy Situation
To rebuild your finances you need access to every financial tool possible, including the equity in your home. Having a bankruptcy on your record will make this more difficult. While bankruptcy is a legitimate method of dealing with a bad financial situation, it will damage your credit.
There is another financial tool that you may not be aware of called a leaseback. With the help of an experienced real estate investor, a leaseback can be a quick and simple solution for any homeowner in this situation.
Can A Bankruptcy Trustee Take My Home
Itâs not common, but itâs possible in certain circumstances.
The bankruptcy trusteeâs job is to sell non-exempt property for the benefit of unsecured creditors. That includes personal property and real property. Whether your home is safe from the trustee depends on whether it has any ânonexempt equityâ which in turn depends on its market value.
As a reminder, hereâs how we calculate equity in this scenario:
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