Refinancing After Bankruptcy

Refinancing after bankruptcy is something that is still a viable option for most homeowners, as long as the homeowner understands their situation fully, and they can identify the steps they must take to improve their chances at approval. Depending on whether you filed for a chapter 13, or a chapter 7 bankruptcy, the bankruptcy mark itself will be on your credit report for seven to ten years. Most chapter 13 bankruptcies keep a bankruptcy on an individual’s credit report for seven years, while for chapter 7 bankruptcies, it is usually around ten years. How does this affect your ability to refinance?

Most lenders are extremely hesitant about providing loans to individuals who still have a bankruptcy on their credit report. The bankruptcy signifies to a lender that an individual has become overwhelmed with debt in the past, and ultimately couldn’t pay it off. They therefore view the person as a much higher credit risk, and will heavily scrutinize the individual’s application and circumstances before making any kind of loan. This holds especially true for home loans such as mortgages, refinances, and home equity loans.

If you are coming right off a bankruptcy, all hope is not lost however. Technically speaking, as long as your bankruptcy proceeding has come to a close, you are on the same level as everybody else when it comes to refinancing, except for the fact that you have a bankruptcy mark on your credit report, and that your credit has probably been ruined coming off a bankruptcy. Unless there were some kind of unique arrangements established during your bankruptcy that state you cannot refinance, or obtain another home loan for x amount of years, you can actually apply for a refinance loan immediately after the close of your bankruptcy.

The problem is the bankruptcy mark and your bad credit. You can’t really do anything about the mark on your bankruptcy besides providing a proper explanation to the lender you are applying to for your refinance loan. As far as your credit goes, you need to promptly begin rebuilding and making improvements right after your bankruptcy proceedings have come to an end. This means that you need to make regular on-time payments for any debt, or other credit accounts you still have post-bankruptcy. It also isn't such a bad idea to look into getting one of the best credit cards after bankruptcy there is, a secured credit card.

If you are thinking about refinancing after bankruptcy, you probably still have a home and a mortgage, and you must begin making consistent payments on this mortgage loan regardless of your credit. If don’t have any other credit accounts, you might want to think about obtaining a secured credit card, or some other small debts, so that you can pay them off regularly and build your credit back up.

Now that you have your credit back on track, you should think about strengthening the other factors that will play a part in getting approved for your refinance. Make sure you have a solid income, and employment history, as these are important factors lenders look at when determining approval or denial. Try and save all the extra money you have after your bankruptcy so that you’ll have the appropriate cash reserves to show your lender when you apply.

You should now have a firm grasp on how to declare bankruptcy, and are hopefully making the necessary improvements to your credit, and overall application. It is now time to identify lenders that make refinance loans to people coming off a bankruptcy. There are many of these so-called “sub-prime” mortgage lenders, and they routinely deal with people who have just gone through a bankruptcy. It is recommended that you wait at least two years after your bankruptcy has come to a close because even these kinds of lenders like to see that you have begun to rebuild your credit, and that you have the remainder of you application in order.

After two years is finished, you should find some of these kinds of lenders you feel comfortable working with, and then all you need to do is just apply. If you aren’t approved immediately, continue to apply and if you are still being denied ask each lender what is causing it exactly. As long as you continue to strengthen your application you will eventually get approved even though you have a bankruptcy on your record, so just be persistent.