Mortgage After Bankruptcy - Mortgage Loans & Refinancing
Tips on applying for a mortgage after bankruptcy
Is it possible to convince a mortgage lender that you're now a good candidate for a mortgage after bankruptcy? A major influence on whether or not you are approved for a mortgage is timing. Lenders prefer to wait two years after the bankruptcy has cleared, and they want to see that you spent that time building up your post-bankruptcy credit score.
If you've done so, through a bank account, credit cards, or a small personal loan, tell your mortgage lender. You can even ask the companies you pay on a regular basis to help you prove you're back in good credit standing. Ask your utility companies, telephone, even Internet and car insurance providers to give you credit reference letters. If you can prove you built up credit, you should be as eligible for a mortgage after bankruptcy as any other individual.
On the other hand, you may run into problems depending on the type of bankruptcy you filed for.
If it was a Chapter 7 bankruptcy that cleared you of debt, you should be okay after the two year period. However, if you pursued a Chapter 13 bankruptcy, and are still making debt payments to the court, then mortgage lenders might be more hesitant. Although shopping for houses might seem rational, it doesn't paint a solid picture if you are still paying off debt.
When trying to get approved for a mortgage, lenders are usually more concerned with the amount of your down payment and any available equity than they are with the bankruptcy case itself. But it's impossible to ignore (bankruptcy case is a foghorn that you were once unreliable with debt) and they will compensate for the risk by tacking on fees and mortgage rates that are far greater than what those in good credit standing would pay.
Be sure you understand the mortgage proceedings inside and out. Before you sign anything, question whether or not refinancing will become available, and what sort of time period is feasible. Will there be penalties involved if you plan to repay the mortgage early? What sort of credit score is necessary for a better mortgage rate? What steps can you take to achieve one? Contact a mortgage lender to discuss your options - the lender will evaluate your case and let you know if you pre-qualify.