Getting A Favorable Interest Rate
After bankruptcy, your credit score will take a major hit. And the lower your credit score, the less likely you are to get approved for a mortgage.
Even if you can get approved, you may not qualify for the best interest rates the lender has to offer. Higher interest rates will raise the overall costs of your loan and negate any financial benefit you hoped to gain from refinancing.
To give yourself the best chance to qualify for a lower interest rate, work on improving your credit score and debt-to-income ratio during that window of time between your bankruptcy discharge and when you apply for a refinance.
Qualifying For A Conventional Loan With Student Loan Debt
Not only can you have a higher debt-to-income ratio, but you might also have an easier time qualifying if you’re carrying a large amount of student loan debt. Here are the figures the lender can choose between:
- the monthly payment amount reported on your credit report
- if you’re on an income-driven payment plan and paying $0 per month, the lender can use $0 as a qualifying payment, or
- if the borrower is in forbearance or the loan is deferred
- 1% of the loan balance, or
- a monthly amount that would fully pay off the balance under the loan terms .
If your fully-amortized payment is less than 1% of the total loan balance formula, you can use the lesser number.
Example. Suppose that you owe $100,000 in student loan debt. Using the 1% of the balance criteria, you’d be attributed a payment of $1,000 per month. However, $100,000 amortized over 30 years at 5% interest is $537 per monthan amount significantly less. You’ll be in a better position to receive a mortgage approval under the second scenario.
Many lenders don’t understand these rules completely. You can try referring them to the guidelines on the Fannie Mae website.
Reaffirming Your Current Mortgage
During the bankruptcy process, you can reaffirm, or agree to pay, some of your secured debts such as a car loan or mortgage. Reaffirming means that youll keep and pay those debts. If you fail to pay as promised, even after the court discharges the bankruptcy, the lender can foreclose on your home. Falling behind on your mortgage payments after bankruptcy can negatively impact your ability to qualify for a bankruptcy refi loan. So as you rebuild your credit and finances, make paying your mortgage a top priority so that you can refinance as soon as youre able to do so.
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Can You Get An Fha Loan After Foreclosure
When a borrower has a foreclosure on their credit history, getting approved for an FHA loan depends on the time that has elapsed since the foreclosure and whether the borrower has worked to re-establish good credit.
The HUD Handbook 4000.1 directly addresses the question of whether a borrower with a foreclosure on their credit report can get approved for a FHA loan or not.
Heres what the HUD Handbook says:
A Borrower is generally not eligible for a new FHA-insured Mortgage if the Borrower had a foreclosure or a Deed-in-Lieu of foreclosure in the three-year period prior to the date of case number assignment.
Therefore, while generally a borrower is not eligible for an FHA loan, there are exceptions that will allow a borrower with a past incident of foreclosure to qualify for this type of loan.
After the 3-year waiting period and if the borrower has established good credit and has shown financial responsibility, they can qualify for an FHA loan.
The 3-year waiting period starts on the date of the DIL or the date that the Borrower transferred ownership of the Property to the foreclosing Entity/designee.
If the borrower can demonstrate extenuating circumstances that were beyond the control of the Borrower and the borrower has re-established good credit since the foreclosure, the 3-year waiting period can be overlooked by the lender.
Look For Ways To Increase Your Eligibility
Bankruptcy and foreclosure don’t disqualify you from getting a VA loan in many cases. But you still need to establish a good credit history and meet financial and income standards to get approved. If you are in a waiting period for VA loan eligibility, work to establish a history of paying your current bills in full and on time. Also check your credit report for errors and work to correct any you find. This may improve your chances of qualifying.
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Why Does It Take That Long After Bankruptcy To Refinance
Bankruptcy involves a process in which an individual has to devise a proper financial plan which would help him get rid of his debts. The court, at maximum, gives a time frame of five years during which the individual has to repay the loans by the medium of a trustee. The trustee protects the individual from any actions by the creditors that would trouble the individual. After the fixed time of repayment, the person is set free from any debt.
Generally, bankruptcies of the chapter 7 type are not in the account after ten years of the date of filing. On the other hand, bankruptcies of the chapter 13 type are not in the account after seven years of the date of filing. During this period, the bank would be keeping eyes on the of the person, which would increase to help them get their belongings faster or fall to bring them misfortune. The longer the waiting period, the more chances of getting the approval.
It takes that long after bankruptcy to refinance because it is believed that the person cannot repay the debts on time. If the bankruptcy is a chapter 7 one, then the case is weakened as in this, the person is also not able to agree with the previous lenders. A bankrupt person must wait for this period to end before getting the appeal for a successful refinancing
Deed In Lieu Of Foreclosure
When you have a deed in lieu of a foreclosure, you are transferring the title of your property to your lender to be released of your loan obligation and to avoid foreclosure. This is the trade-off borrowers make to be relieved of their mortgage debt. A deed in lieu of foreclosure typically reflects on your credit record for 4 years.
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My Lender Told Me I Couldnt Do This
Most people find my website because they speak to a loan officer that does not have experience with these guidelines, or they work for a lender that has chosen to not deal with these types of loans.
Make no mistake, these loans are more difficult to get approved. There is the additional paperwork of having to provide your bankruptcy petition, bankruptcy discharge, and other court documents to prove that the mortgage was included in the bankruptcy.
Add to that, the fact that almost every situation is different. For many loan officers and lenders, its simply not a good use of their time to work with you.
I know, its sad, but true.
Thankfully, you did not take NO for an answer, and youve found a resource that can help.
Just because a lender tells you that you cannot refinance, does not mean that you do not qualify. It only means that THEY will not lend under those circumstances.
Check Your Credit Report
Lenders look at your credit reporta detailed report of your credit historyto determine your creditworthiness. Although bankruptcy filings can remain on your credit report for up to 10 years, it doesnt mean you have to wait 10 years to get a mortgage.
You can speed up the process by making sure your credit report is accurate and up to date. Its free to check: Every year, you are entitled to one free credit report from each of the big three Equifax, Experian, and TransUnion.
A good strategy is to stagger your requests, so you get a credit report every four months . That way you can monitor your credit report throughout the year. One of the best credit monitoring services could also be useful in this endeavor.
On your credit report, be sure to watch for debts that have already been repaid or discharged. By law a creditor cannot report any debt discharged in bankruptcy as being currently owed, late, outstanding, having a balance due, or converted as some new type of debt . If something like this appears on your credit report, contact the credit agency right away to dispute the mistake and have it corrected.
Other mistakes to look for:
- Information that is not yours due to similar names/addresses or mistaken Social Security numbers
- Incorrect account information due to identity theft
- Information from a former spouse
- Outdated information
- Wrong notations for closed accounts
- Accounts not included in your bankruptcy filing listed as part of it
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How Do You Refinance Your Mortgage After Bankruptcy
There are challenges that come with refinancing after bankruptcy, but once youve been through the waiting period, and youre ready to refinance, its the same application process youd go through for any kind of mortgage refinance.
- Look for a lender
- Submit your application and any supporting documents requested by the lender
- Select a lender based on the terms they offer you
- Go through the underwriting process
- Get your home appraised so the lender has a sense of its fair market value
- Close on the refinance
The Right Time To Refinance A Car Loan
The main reason to refinance is to save money on your auto loan. If you just want to pay your car loan off faster, all you have to do is increase the payment each month theres no need to refinance.
However, not everyone can do this if their monthly payment is currently pushing the limits of their budget, and thats where refinancing comes in handy.
Additional Requirements And Assistance
It won’t come as a surprise that you’ll need to meet other criteria, tooalthough you might not realize that individual lenders could impose tougher guidelines. Even so, with persistence, it’s likely that you’ll find a bank who will be willing to work with you.
Additionally, your state could have a first-time homebuyer program to help with your down payment. With the right combination of programs, chances are you’ll be in your new house in no time.
You can find out how to rebuild your credit in Improving Credit After Bankruptcy or Foreclosure.
Buying A House After Chapter 7 Bankruptcy Faq
How soon can I buy a house after Chapter 7 discharge?
Most home buyers have to wait at least 2 years after Chapter 7 discharge before they can get approved for a home loan. It may be possible to qualify sooner if you were forced into bankruptcy for reasons beyond your control, but early approval is rare.
What is the average credit score after Chapter 7?
The average credit score after a Chapter 7 bankruptcy is commonly in the low 400s to mid 500s, according to attorney Jeremiah Heck. To qualify for a home loan, you typically need a credit score of 580620 or higher.
Can you buy a house after Chapter 7 with a co-signer?
Yes, having a cosigner can improve your chances of getting a mortgage postbankruptcy. But remember that this can be a risky move for the cosigner. So you want to be sure you can make the monthly payments on time if you choose this option, recommends Graham. Also, you will still likely need to wait two to four years after a bankruptcy to apply for a mortgage loan, even with a cosigner.
Can I get a VA loan 1 year after Chapter 7?
Usually not. The minimum waiting period to obtain a VA loan after Chapter 7 bankruptcy is two years.
Can I get an FHA loan after Chapter 7?
Yes, provided you rebuild your credit and wait two years after your bankruptcy is approved by the courts. Avoiding new debt after your bankruptcy is discharged can also help your chances of qualifying for an FHA mortgage.
What credit score do I need for an FHA loan?
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Learn How Long It Takes To Get An Fha Va Usda Or Conventional Mortgage Loan After Chapter 7 Or Chapter 13 Bankruptcy
Updated By Cara O’Neill, Attorney
Filing for bankruptcy doesn’t have to put a damper on your home buying dreamat least not for long. Lenders have eased requirements, opening the door for bankruptcy filers to get back into a home sooner than in the past.
Currently, the average waiting period is two years. In this article, you’ll learn about common mortgage loans and the respective eligibility requirements for bankruptcy filers.
When Can I Refinance My Post
If youve had a bankruptcy discharged, and then successfully took out a bad credit auto loan after, when can you refinance it? You can refinance a post-bankruptcy car loan, but you generally have to wait for at least a year to pass in order to qualify as is the case for any other auto loan. There are also specific car refinancing requirements you need to meet that vary by lender. However, we can tell you what most lenders look for so you know what to expect.
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How Long Do I Have To Wait To Refinance After Chapter 7
2 yearsChapter 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.
Determine Your Waiting Period
The main difference with a mortgage refinance after bankruptcy is the time period youre required to wait after your bankruptcy discharge or dismissal, which varies by loan type.
The table below highlights the waiting periods by loan type for both Chapters 7 and 13.
A Chapter 7 bankruptcy typically has a longer waiting period than Chapter 13. Why? Because consumers are already repaying their debt under a Chapter 13 plan, so the requirements arent as rigid. Youre restructuring instead of discharging your debt, which proves your ability to continue repaying it.
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How To Refinance After Bankruptcy
After going through bankruptcy, it can take a while to get your financial life back on track. If you have a mortgage youd like to refinance, the question of when exactly youll be able to get your financial life back on track is a vital one.
While its possible to refinance after bankruptcy, its not something youll be able to do right away, and youll need to do some work to prove to lenders that youre creditworthy. Heres what you need to know.
What You Need For Preapproval
With or without a history of bankruptcy, youll need good enough credit to get preapproved. Heres what that means for each loan type.
- Conventional Fannie/Freddie mortgage: 620
- FHA loan: 500 with at least 10% down 580 with at least 3.5% down
- VA or USDA loan: No minimum, but you are more likely to get approved with a score of at least 640
Gather these documents before you apply so lenders will be able to quickly make a preapproval decision on your loan.
- Your Social Security card
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How Long After Bk Can I Refinance
When the person cannot repay the sums of money borrowed from creditors, bankruptcy is often cited as the most prudent solution for repayment. Getting bankrupt is something that people often face when they are low on their monetary benefits and other assets. Going bankrupt is said to be one of the worst nightmares of a human being. Despite several efforts here and there, the final declaration of such a scenario is sure to have an apparent effect on future purchases. The overall process is a bit complicated, but going completely bankrupt does not imply bleak prospects.
There is another popular type of bankruptcy that is chapter thirteen bankruptcy. When one wishes to go through this type of bankruptcy, the person has to give any one of the assets and pay the loan. After the clearance of the debts, the asset would be returned to the individual. The person desiring to fill this must have an income source that helps him feed himself daily. Bankruptcy is one of the most widely used legal processes of liquidating an individuals assets to repay creditors. This is often considered the last resort available to a potential defaulter.
|Chapter 13 Bankruptcy||One year|
It takes time to refinance after getting bankrupt. If the bankruptcy is a chapter 7 bankruptcy, then it takes two to three years to refinance. In contrast, chapter 13 bankruptcy takes one year for refinancing.