Bankruptcy And Mortgage Refinance

Find Out How Bankruptcy Will Effect A Mortgage Refinance That You Might Need Later

Is There Life after Bankruptcy? Can You Actually Get a Mortgage?

You'll probably need to go to a sub prime lender to obtain financing for your home if your bankruptcy is less than two years old. Your rates will be higher, on average about 12% higher than conventional rates. However, after two years, conventional lenders will consider your loan application.

From the perspective of the mortgage lender, someone who's gone through a bankruptcy is operating with a "clean slate". More than likely all previous debt, or the better part of it, has been either erased or paid off. To that end the mortgage lender is looking at the applicant as someone who has more money to spend in the future, not someone who has money problems in the past. You also have to remember that a mortgage is a secured loan. Like all secured loans the front end payments go primarily to interest while the backend payments take care of the principal. So, if someone is going to default on a home mortgage the banker is going to actually be paid first.

Give yourself a fighting chance

If you have the cash consider a down payment of up to 50% when applying for a mortgage. This can actually lower that extremely high interest rate during the first two years as well as provide you with a smaller monthly mortgage payment. You'll also want to show a cash reserve of between two and three months in the bank when applying for the loan.

An ARM, or "Adjustable Rate Mortgage" will help you get temporarily lower rates. Applying for a shorter loan period, say, 15 years, can also lower your rate. Then, in a couple of years when your credit improves, refinance at an overall lower "fixed" rate.

Be consistent

When you get ready to apply for a mortgage, get all of the information you'll need together in one place and make sure the entire numbers match. This will speed the process of applying to multiple lenders, especially online, where you can actually get a preliminary decision in as little as ten minutes.