Find The Right Mortgage Lender
Be upfront with your lender or mortgage broker, and ask them how they work with borrowers in your situation. If you did have issues with your spending or debt, let them know what youve done to improve your money management.
If your regular lender cant help you, there are always other options. Some lenders specialize in working with borrowers who have been through bankruptcy.
One good place to start is the FHAs list of approved lenders. Since FHA-approved lenders offer both conventional loans and FHA loans, they have experience working with borrowers who have less-than-perfect credit and may be able to provide you with a range of mortgage options.
You Can Get A Mortgage After Bankruptcy Heres What You Need To Know
You do need to be aware that buying a home after bankruptcy is not the same as buying a home for the first time with no issues. There are two main factors:
- How long ago was your bankruptcy discharged, or your consumer proposal completed?
- How long have you been re-establishing your credit, and how extensive is that credit?
The mortgage options available to you depend on the answers to these questions. In a nutshell, you will be looking at either a mainstream or alternative lender .
Benefits Of Refinancing Your Home Loan After Bankruptcy
There are several benefits to refinancing after bankruptcy:
- Lower monthly payment: Refinancing can reduce your minimum monthly cost to a more budget-friendly amount.
- Lower mortgage rate: By taking advantage of low refinance rates, you can reduce the amount of interest youll pay over the life of the loan.
- Switch to a fixed interest rate: If you currently have an adjustable-rate mortgage , refinancing to a fixed interest rate can provide more stability to your monthly payments.
- Extra cash for debt payments: You may consider a cash-out refinance and utilize the equity in your home to repay high-interest debts.
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Shop Around For Mortgages
Buying a house is one of the biggest purchases youll ever make, so it pays to compare lenders when youre ready to take the plunge. Many people overlook shopping for the best mortgage because its more fun to hunt for your dream house. Dont make that mistake.
Theres more to the cost of a mortgage than the interest rate. You need to look at the whole picture to make sure youre getting the best deal for your financial situation. If youre coming off a recent bankruptcy, you should expect a higher interest rate right out of the gate.
Determine Which Loan Type You Need
Consider what type of loan is best for you. Conventional loans are offered by private lenders like mortgage companies, credit unions, and commercial banks. These loans tend to have more rigid criteria for approval but include more flexibility after the loan is secured. Government loans are also available.
The best-known government loan is the FHA loan, which is backed by the Federal Housing Administration. These loans usually have more flexible income and down payment requirements. However, FHA loans often restrict your ability to rent out or flip the property because these loans are intended for first-time or low-income homebuyers who are expected to make the house their primary residence.
Know Your Interest Rate Options
Dont Forget About Additional Fees and Expenses
Chapter 13 Bankruptcy Waiting Periods
Filing Chapter 13 leads to a reorganization of debt, with scheduled payments to clear those debts . Because Chapter 13 bankruptcy includes regular payments, it does not affect your credit score as much as Chapter 7, and the waiting period for some loans is shortened.
If the bankruptcy court dismisses the bankruptcy , the waiting period is four years from the dismissal date. If the court discharges the case , the time is four years from the date you filed and two years from the discharge date.
Its important with Chapter 13 to make those payments on time and in full not doing so will anger the court and negatively affect your home-buying ability.
Specific times for specific loans after Chapter 13 include:
- For a conventional loan, four years from dismissal date. If the court discharges the case, the time is four years from the date you filed and two years from the discharge date.
- One year for a USDA loan.
- FHA and VA loans are the most generous following Chapter 13 these lenders simply require the court to dismiss or discharge your bankruptcy before you apply. FHA also will guarantee a mortgage as soon as 12 months after you file Chapter 13, provided you are making court-ordered payments on time.
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Guide To Buying A House After Bankruptcy
If youve had to declare bankruptcy, you may feel like youll never be able to get your finances in order again. And worse, you may feel like youll never have a house of your own again.
But the reality is that bankruptcy isnt a permanent mark on your financial record. Although your credit score will plummet when you declare bankruptcy, the Consumer Financial Protection Bureau found that those who declare bankruptcy often have higher credit scores when compared to those who try to work out difficult finances without resorting to bankruptcy.
How Long Will I Need To Wait To Obtain A New Mortgage After Bankruptcy
If you have experience of bankruptcy and are not sure whether you will ever be able to obtain a mortgage, you certainly are not alone. We have seen too many instances where potential homeowners simply have not been given any information on this topic, which has caused a lot of undue stress, worry and concern.
You cannot apply for any type of credit including a mortgage until your bankruptcy has been discharged. This will usually take around 12 months but it could be less depending on the decision made by the courts. When you have been discharged, you will likely find that most lenders wont start to consider you as a trustworthy lending prospect for several years.
In terms of offering mortgages for discharged bankrupts, each individual lender will have its own set of criteria. Some lenders will consider applicants immediately after discharge but it is important to note that their criteria will be strict, you will need to have a sizeable deposit and the rates and fees will be markedly higher than those for other mortgage products.
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What Are Todays Mortgage Rates
Todays mortgage rates are at historic lows.
Typically, home buyers applying after Chapter 7 bankruptcy will be charged higher interest rates. But shopping around in todays low-rate market could help you net a fair deal on your home loan.
If youre thinking about buying a home, check with a few mortgage lenders to verify your home loan eligibility and find out what rates you qualify for.
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Step by Step Guide
What Happens To My Mortgage If I File Chapter 7
Chapter 7 bankruptcy is known as total, straight, or liquidation bankruptcy. It is a wipeout of much of your outstanding debt under the guidance of a court-appointed bankruptcy trustee, who manages your assets in relation to your creditors. As part of a Chapter 7 Bankruptcy filing, the bankruptcy trustee may force you to sell, or liquidate, some of your property to pay back the debt you have accrued, and this may include your home under certain circumstances.
Does the property you may have to sell in a Chapter 7 Bankruptcy include your home in Texas? If you file and qualify for Chapter 7 Bankruptcy, you will likely have the choice of keeping your home, provided you continue to make your mortgage payments. However, if you want to abandon your home, you also have the choice of stopping your mortgage payments, and bankruptcy discharge of mortgage debt related to your home loan will occur at the end of the case, meaning you will not have to pay any more payments.
The lenders security interest in the property, however, remains in full force and effect, so the lender will be able to foreclose on your home if you stop making payments, once the bankruptcy is over. So, in short, the answer to can I include my mortgage in bankruptcy is a yes. Your personal obligation to pay the mortgage can be discharged, just remember that the lender can enforce their rights and retake your home.
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Waiting Periods To Refinance
You cant refinance until your bankruptcy waiting period is over. Both types of bankruptcy have a specific time frame during which you cannot get a mortgage loan or refinance.
- Chapter 7: You must wait at least 2 years after the discharge or dismissal date before you can refinance your loan. The 2-year standard only applies to government-backed loans like FHA loans and VA loans. Most lenders require that you wait 4 years after your discharge date for a conventional loan. The waiting period on jumbo loans is 7 years. Remember not to confuse your discharge date with the date you filed for bankruptcy.
- Chapter 13: You can qualify for a refinance as little as a day after the discharge date of your Chapter 13 bankruptcy if you have a government-backed FHA or VA loan. The waiting period is 2 years after discharge if you have a conventional loan, but the bankruptcy must have been filed more than 4 years from the time your credit is pulled. Alternatively, it can be dismissed more than 4 years ago. The waiting period for jumbo loans is still 7 years.
You may also need additional documentation that will vary depending on the loan program youre applying for. Finally, you’ll need to meet the individual standards of the lender youre working with to qualify for a refinance.
Will I Lose My House If I Declare Bankruptcy
This is a possibility, but dont panic just yet. There could be options available to you.
While you may not lose your home as part of the bankruptcy itself, it could be repossessed if youre behind on your mortgage payments. Your lender has the option to take action to recover the debt if youre in arrears. This could include repossessing the property.
There are a number of scenarios where you may be able to prevent or delay a repossession, including
- If you have family or dependents living with you
- If youre in negative equity
- If somebody buys your share of the property
If youre facing bankruptcy, its always a good idea to contact your lender to discuss how this could affect your mortgage.
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Buying A House After Chapter 7 Bankruptcy
If you had a bankruptcy discharged a year ago or more, you might be starting to get your finances back in order. Maybe youre even thinking about buying a house.
The good news is that its possible to purchase a home following a Chapter 7 or Chapter 13 bankruptcy.
But theres a waiting period before you can take out a mortgage usually at least two years. And lenders will be looking closely at your credit score, credit reports, bankruptcy discharge details, and other factors to ensure you qualify.
Tread carefully after bankruptcy and take steps to improve your credit. With hard work and patience, youll eventually be able to get a home loan.
What Type Of Mortgage Can You Get After Bankruptcy
Its technically possible to get any type of mortgage loan after a bankruptcy. There are no rules in place that permanently exclude you from getting a certain type of loan because youve gone through a bankruptcy. As long as you meet the waiting period discussed above, youre free to apply. But you can qualify for some types of mortgage loans much easier than others.
An FHA loan could be a great option if you have a bankruptcy on your record. FHA waiting periods are shorter than other types of loans. If you have a Chapter 13 bankruptcy, theres no waiting period at all after a court dismisses or discharges you. FHA loans also have looser requirements compared to other types of government-backed loans.
One of the major benefits of getting an FHA loan after a bankruptcy is its lower credit requirements. Even after a court dismisses or discharges your bankruptcy, it will still negatively influence your credit score. A Chapter 7 bankruptcy will stay on your credit report for 10 years, while a Chapter 13 bankruptcy will stick around for 7.
During this time, your credit score will be much lower than before your bankruptcy. You can buy a home with an FHA loan with a credit score as low as 580 points. You may even qualify for a loan with a score as low as 500 points if you have a down payment of at least 10%. However, at Rocket Mortgage®, the minimum credit score is 580.
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Can I Get A Buy To Let Mortgage After Bankruptcy
It is possible to obtain a buy to let mortgage if youve been bankrupt in the past, depending on your circumstances.
Ideally, youll need to meet the following criteria:
- have been discharged for three years, and had clean credit since
- have at least a 15% deposit
- own at least one other property
- have a personal income (no minimum threshold needed but you do need some form of personal income, whether self-employed, employed, or retired.
How Can Pepper Money Help With A Mortgage After Bankruptcy
As a specialist lender we look at things differently and dont see your bankruptcy history as something that should hold you back from your future home loan happiness. We understand that sometimes circumstances beyond your control can lead to a default, leaving you with an impaired credit history. Unlike traditional lenders who may use automated credit-scoring methods, well talk with you one-on-one to learn more about your individual situation.
If you have been officially discharged or entered a debt agreement, there are a number of home loan options that might suit you. In some cases, we may be able to assist you with finalising a debt agreement or structuring debt consolidation into your home loan through refinancing.
While there is no restriction when it comes to applying for a mortgage after bankruptcy ends, it is important to assess your financial situation and seek an advice when needed, to ensure that the new loan doesnt put you in the same situation you were in.
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What Assets Are Protected During Bankruptcy
Exemptions allow you to keep a certain amount of assets safe in bankruptcy, such as an inexpensive car, professional tools, clothing, and a retirement account. If you can exempt an asset, you dont have to worry about the bankruptcy trustee appointed to your case taking it and selling it for your creditors benefit.
S To Improve Your Credit Scores After Bankruptcy
Theres one thing thats true when applying for a mortgage, whether it comes after a bankruptcy or not credit score is king. The better the score, the quicker you will be approved and the lower the interest rate will be. The interest rate makes a huge difference in your monthly bill, as well as how much you pay over that 30 years.
The fastest way to repair your credit for a mortgage after bankruptcy is to make on-time payments on all debt, and to keep the amount you use to less than 30% of the credit limit, which is the credit utilization rate.
Payment history and credit utilization rate account for 65% of your credit score. Missed payments and overspending with credit cards are credit-score killers.
Other factors are length of credit history, credit mix and new credit. It helps your score if you have a variety of credit and can balance using credit cards youve had for years with using new ones.
The whole thing may seem a little abstract, but if you do the math on a 30-year mortgage the difference between a low and high score brings it into focus. On a $250,000 mortgage, a 3.5% interest rate means a $1,122.61 monthly payment. A 4.5% interest rate would mean a $1,266.71 monthly payment.
Thats a difference of almost $52,000 by the time the mortgage is paid off.
A bankruptcy will cause a credit score to plunge, but there are things consumers can do to lessen the impact.
This comes with a monthly fee, but the reduced interest rate more than makes up the difference.
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