Refinancing after Bankruptcy

Though at first glance it might seem impossible, refinancing your home loan after going through bankruptcy is practicable as long as you can meet certain requirements. As a matter of fact, refinancing a home mortgage is probably one of the few financial transactions that can be accomplished by someone who's recently had a bankruptcy discharged. Since a mortgage loan is secured by an asset, the usually extremely low credit score of the person with a bankruptcy in his credit file isn’t quite as detrimental as it might normally be considered to be. Moreover, refinancing a home loan affords the opportunity to raise your credit score and improve your credit history. The monthly payments that you make will be recorded and become a part of your credit report and contribute to the strengthening of your credit score.

However, you won’t be able to apply for a refinance home loan until six months after your bankruptcy has been discharged. You'll need to put that time to good use and work hard to build as good a credit record as you can in order to bolster your chances of approval when you do apply. In order to do this, it's absolutely essential that you make all of your present bill payments on time, including (especially!) your current home loan monthly installments. Any late or missed payments will simply be further grounds for a prospective lender to disapprove your request for credit (and it's a safe bet that with a bankruptcy, you've already got all the negative grounds that you'd care to have).

Furthermore, if you haven’t done so already, open a bank account – preferably checking and savings – and get a credit card. If you can’t get approved for an unsecured credit card, apply for a secured credit card and start using it (sparingly) and making regular monthly payments. It's best to use it and pay the bill off completely every month (this will save you the higher interest charges that secured cards are often known for). All of these actions will help you to build a healthy credit history and give the mortgage lender positive financial information on which to base a loan.

With all that said, however, finding the right lender after a bankruptcy may still be somewhat difficult (though by no means impossible). Nevertheless, searching for a suitable lender is an absolutely crucial step to take. If you prefer (and if they choose to accept your application), you can refinance with the same lender that's currently handling your home loan, but don’t jump at the first offer that you receive. Even with a bankruptcy, shop around; get quotes from several prospective lenders. Using a mortgage broker can benefit you tremendously here, because brokers often have access to many different lenders that offer many different loan programs for people with almost any type of credit background.

Although you'll have to pay a somewhat higher interest rate and fees because of the bankruptcy, don’t let lenders take advantage of this situation. The loan is still secured by the collateral of your home so there's no reason to charge excessively high rates, regardless of how low your credit score is. Continue to shop and compare; you'll be able to find a fair lender that you can work with and who can work with you. Many others have.

 

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