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Is it possible to refinance a mortgage after bankruptcy?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 23rd Dec, 2005 01:24pm
Bankruptcy can indeed be very harmful, strenuous and demoralizing experience. It is very tough and challenging task for you to get out of bankruptcy stains. It has become tougher since the devastating property market crash the country had witnessed in recent past. Though it’s difficult but still it’s not impossible to obtain a mortgage loan after bankruptcy or to refinance after bankruptcy. However, to do so, you have to devise an appropriate financial recovery plan. Here are the guidelines that you need to follow so as to obtain a refinance loan after bankruptcy.



  • Filing for a Chapter 7 and Chapter 13 bankruptcy has different implications. You need to understand the difference between filing for these 2 types of bankruptcies. Generally, Chapter 7 bankruptcy is discharged within 6 months, whereas for Chapter 13 bankruptcy discharge, it takes 3 to 5 years. But, after one year of Chapter 13 bankruptcy case, you may be eligible for refinancing a mortgage.


  • You need to start reconstructing your financial life immediately after filing bankruptcy. You must put in serious efforts to re-establish your credit. Your lender examines your credit report so as to judge your creditworthiness. Anyways, the negative effects of bankruptcy remain on your credit report for several years. A Chapter 13 bankruptcy shows up on your credit report for nearly 7 years and a Chapter 7 bankruptcy stays on your credit report for nearly a decade. However, with some concrete steps, you can get back to solid financial footing. You must pay your bills on time, without fail. You can employ automatic deposit system from your paycheck account to pay the debts. Even by taking out a secured credit card and by making timely payments, you can improve your credit score.


  • You should get an estimate of the current market value of your home. Then you need to compare the current market value of your home with outstanding mortgage balance. In other words, you need to calculate the loan to value (LTV) ratio. If you have got discharge from bankruptcy recently and if your LTV ratio is more than 75%, then it will indeed be very difficult for you to obtain a home refinance loan at better rates.


  • Bankruptcy badly hurts your finances. It depletes your cash reserves. You can increase your chances of getting approved for refinancing after bankruptcy if you can show some cash increases. You can do so by taking a second job, selling a yard or two, selling some items in an online auction etc. If you can show up that you have accumulated some cash reserve, then you may get approved for refinancing even with a recent bankruptcy discharge.


Not all the lenders will be interested to offer you a home refinance after bankruptcy. Anyways, you will surely find out some lenders who will offer you such loans. It is quite likely that the rates charged will be higher than the rates charged for conventional type of refinancing. Anyways, you must shop around so as to find out the best lender.
Posted on: 23rd Dec, 2005 01:24 pm
I filed bankruptcy was declared two years ago. How long will it take to refinance at a lower rate?
mY CURRENT INTEREST RATE IS 7.625 ON A PROPERTY OF 413,000.00. ITS BEEN QUITE A CHALLENGE TO MANAGE PAYMENT ON A MONTHLY BASIS. THOUGH ITS A FIXED RATE, AM WONDERING IF ISHOULD REQUEST FOR INTREST ONLY NOW AND AFTER BANKRUPTSY CAN I GET A LOWER RATE
Posted on: 08th Sep, 2008 12:26 pm
Hi Nikky,

Welcome to our community forums.

Why do you want to file bankruptcy and what type of debts would you include? If you're filing only because of the mortgage payment, I think that's a wrong move. I mean current rates on fixed mortgages are quite low, that is, national average rates are around 6%. So, if you can refinance now with a low rate, you'll actually benefit. Also, you my go for interest-only but keep making at least some payment towards the principal. This is allowed in case of interest-only loans.

Regards,

Jessica.
Posted on: 09th Sep, 2008 04:56 am
I WAS IN AN ARM WHEN I FILED FOR BANKRUPTCY. MY BANKRUPTCY WAS
FIVE LONG YEARS AND WILL BE DISCHARGED FEB,2008 MY INTEREST
RATE IS ALMOST 13% NOW AND IF I CANNOT REFINANCE I MIGHT AS WELL FILE BANKRUPTCY ALL OVER AGAIN...ISNT THERE ANYONE TO HELP ME...AFTER ALL I AM DEBT FREE NOW WITH THE EXCEPTION OF MY MORTGATE
Posted on: 01st Dec, 2008 11:22 am
Welcome renee,

Did you speak to your lender about refinancing the mortgage? You can even contact the other lenders to check if they can offer you a refinance. In my opinion it will be a bit difficult for you to get refinancing. You will have to prove to the lender that you will be able to pay off the dues in time. You will also have to show that bankruptcy has cleared your debts.
Posted on: 01st Dec, 2008 11:11 pm
Welcome to MortgageFit!

If you're currently in a Chapter 13 BK then you maybe able to do a FHA Buyout. You can't have any lates within the last 12months. You can get the FHA buyout after 12months from the start of the BK 13. Of course you will need equity in your home to do this.

Good luck and post back your experiences!

Thanks,
Robert
Posted on: 02nd Dec, 2008 05:30 am
I am trying to refinance and most lenders are telling me I must go FHA since the bankruptcy is not 4 years old. I have one who is saying that is not true and he can do a Freddie Mac (conventional) loan for me. I do not want to pay PMI.
Posted on: 29th Dec, 2008 02:26 pm
as far as i know, if you had filed chapter 7 bankruptcy, and if 2 years have passed from discharge, then you may get fha loans. but if you want to get conventional loans, you'll have to wait till 4 years after discharge.

as far as paying pmi is concerned, if you pay a 20% down-payment, then you will not be required to pay the pmi.
Posted on: 29th Dec, 2008 10:40 pm
can i retake my house if this one went to chapter 7 im late 8 months
Posted on: 24th Feb, 2009 03:45 pm
Welcome Jaime,

If you have filed Chapter 7, then you can retain your property provided if you reaffirm your mortgage after you are discharged of bankruptcy. When you reaffirm the mortgage, the lender will give you a new repayment plan through which you will be able to pay off the debts. However, if you default, then the lender can foreclose your property.
Posted on: 24th Feb, 2009 10:13 pm
I filed chapter 13 about a year ago and have lost my job of 15 years I am currently receiving unemployement benefits. I really need to refinance my home to lower my monthly payments. Is there help for me?
Posted on: 29th Mar, 2009 07:56 am
Welcome vfm,

As you are unemployed, you would face problems in refinancing the mortgage. I would still suggest you to speak to your lender once and check if he can refinance the loan for you.
Posted on: 30th Mar, 2009 12:16 am
Can I get a mortgage after 16 months with a Chapter 7?
Posted on: 04th May, 2009 12:47 pm
Hi Harbaugh,

To get a FHA mortgage after Chapter 7, you'll have to wait for 2 years. If you are planning to go for a conventional mortgage, then you'll have to wait for 4 years. So, I don't think you'll get a mortgage just after 16 months of filing Chapter 7.

Thanks
Posted on: 04th May, 2009 09:43 pm
We have absolutely no debt at this time, but have no credit cards,loans or anything to re-establish credit rating.
Posted on: 12th Nov, 2009 12:02 pm
Hi Judy,

Getting a mortgage would depend upon your credit score. So, what's your credit score like? Did you take steps to improve your credit score after bankruptcy? You should remember that you would get a conventional loan once you have a score of 720-740.

Thanks
Posted on: 12th Nov, 2009 07:54 pm
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