Need to know how to refinance a mortgage after bankruptcy? Changing mortgage regulations, strict lender underwriting guidelines, a drop in home values and the downturn in the economy have made the refinancing process more confusing and difficult to obtain for many with decent credit let alone after a bankruptcy. There are still mortgage refinancing options for those who have suffered bankruptcies due to financial issues. How can you finance your mortgage after a bankruptcy?
Understand the limitations of your bankruptcy filing
There are different guidelines depending on whether you filed a Chapter 7 or a Chapter 13 Bankruptcy. In many situations, if you filed a Chapter 7 bankruptcy, you may have lost your home as part of the bankruptcy process-but this is not always the case. Understanding your rights and the responsibilities of your particular bankruptcy plan will make you better able to have realistic expectations regarding home refinancing options.
Understand the lending options available for refinancing a mortgage after a bankruptcy
There are conventional loans, FHA refinancing options, and VA mortgage loan options available to both those who have filed a Chapter 13 as well as a Chapter 7 Bankruptcy.
Is an FHA loan right for you?
FHA lenders require that Chapter 13 filers wait at least a year after filing to qualify for a refinance loan and require evidence of timely payments. Discharged borrowers must document that payments were made as agreed according to the terms during at least the most recent 12 months. Chapter 7 borrowers seeking a FHA loan must provide proof that the bankruptcy has been discharged for a period of 2 or more years.
VA Loans are similar to FHA loan offerings
To refinance a mortgage with a VA Loan, a prior Chapter 7 bankruptcy is considered acceptable provided that it is over 2 years discharged. If discharged within the most recent 2 years Chapter 7 bankruptcy is unacceptable unless 1) new credit has been obtained and obligations met successfully for at least a year or 2) there were extenuating circumstances leading to the bankruptcy. Chapter 13 is the same as the FHA guidelines except that VA loans must only show a successful discharge of the bankruptcy rather than prove of payment.
Conforming conventional loans are the most stringent
If a bankruptcy was filed within a 48 month period of the credit report date, the loan will be declined by a conventional lender. You must wait at least 48 months from the bankruptcy filing date and the bankruptcy must be discharged before initiating the application and initial credit pull.
Be sure to uphold the terms of your bankruptcy plan
Make sure your mortgage payments and your trustee payments are made on time as this is important to your refinance.
Mind your credit report. Any newly obtained credit will be especially important to your refinance application. Be sure that any accounts acquired after the bankruptcy are paid on time and handled responsibly to reestablish your credit worthiness.
Remember that all other refinance criteria will apply to the mortgage loan application
You will need to show acceptable income and assets-so be sure to maintain your current salary and try to avoid job changes or profession moves until after the loan closing. Your home’s appraisal value must be assessed and reviewed-so be sure that your home is in tip top shape so that it is ready for the appraisal.
Refinancing a mortgage after a bankruptcy is not impossible for many borrowers. Even with a previous bankruptcy, many borrowers are able to find suitable lending options for refinancing. Be sure to explore and research all of your options before labeling your financial situation as hopeless!
FHA Guidelines for Credit Report Review-Chapter 13 Bankruptcy
FHA Guidelines for Credit Report Review-Chapter 7 Bankruptcy
VA Credit Underwrting