How to Re-apply or Qualifying for a Mortgage after Bankruptcy in Best Companies
It happens with many in the life that things go wrong unexpectedly and you become bankrupt. Going through bankruptcy and fear of losing your house is always very stressful and difficult phase of your life. Here we will discuss on how to get fastest mortgage pre approval and how to qualifying for a mortgage after bankruptcy. You can also check online list of best companies that deal with bankruptcies.
The after effects of bankruptcy are equally unpleasant. You have to go through ordeal, but simultaneously you have to gather all your strength and make efforts to come over it. You have to think of re-applying for a mortgage. It is very challenging and denting to go through the process of re-applying for a mortgage with a poor credit rating. You shouldn’t get disappointed; you still have many options that will help you secure your home. Following given are the guidelines and tips that will help you with smooth running of your application for the mortgage after being made bankrupt.
How soon after bankruptcy can you get a mortgage?
Different mortgage plans can have different waiting periods following a bankruptcy.
You should take an opinion of your home’s fair market value (FMV) from an expert. FMV to the outstanding mortgage balance shows the equity percentage and is called loan-to-value. For example, if the FMV is valued at $250,000 and the mortgage balance is $200,000, the LTV is 80%. It is difficult for home owners with a recent bankruptcy discharge and an LTV more than 75% to seek a reasonably priced mortgage refinance.
The most important thing to consider when you re-apply for a mortgage is time key. Usually the time you will have to wait for depends on the type of bankruptcy. The most common form of bankruptcy is chapter ‘7’ and chapter ‘13’.
In case of chapter ‘7’ FHA mortgage type, the waiting time is at least two years, whereas for a conventional loan, it is four years. For an FHA mortgage, the waiting time may reduce to one year if your bankruptcy is due to extenuating circumstances. For example, your bankruptcy was the result of unexpected medical bills or you went through a great loss due to natural disaster rather than poor financial management. Usually it is not advisable to apply for mortgage in one year as you will have to pay higher down payment as well as interest rate.
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Chapter 13 bankruptcies are somewhat different from chapter 7. You might get conventional loan after two years of a Chapter 13 discharge. It is also less difficult to get FHA and VA loans. In case of chapter 13 bankruptcies, borrower might become eligible for government backed loans just after one year from filing a chapter 13 bankruptcy. It requires 12 consecutive months of on-time payments and permission from the court to re-apply for a mortgage.
Rebuild your credit score
With bankruptcy, your credit scores get too low, you will have to work real hard in order to rebuild it in the waiting period, so that your application for re-mortgage can be approved. You have to keep tracking your credit reports and credit scores regularly, every year you can get free credit report from three main credit bureaus Equifax, Trans Union and Experian. If you find any information incorrect, check it with credit bureau. You can do it online on the website of the bureau. The degree of improving score will vary depending upon what the consumer’s score was prior to the bankruptcy filing and to what degree the bankruptcy affected the consumer’s score. Credit score is also affected by how much new debt has been established and the time that has elapsed since the bankruptcy discharge.
To rebuild your credit score, you should use secured credit cards. This will limit the amount you will spend with the credit card every month. To get secured credit card, you just open a secured account immediately after you are discharged from a bankruptcy. For that you will have to make a deposit into a secured bank account. You apply for a secured credit card and bank will issue it with a credit line that is 50% to 100% of the deposit. It helps prepare a credit report for a mortgage refinance.
You pay your bills on time and it will help you show your credit worthiness to your lender when you try for refinance your mortgage. You try to keep your balance under 30 percent of your total credit limit and you find good reflection on your credit limit.
Begin a saving plan
When you re-apply for a mortgage after bankruptcy, you are likely to be asked to pay 3 percent down payment or closing cost. You will also have to show your financial resources with the application. A saving plan also helps you with credit score.
Consider refinancing through a conventional local lender
When you re-apply for a mortgage to a local lender such as a local bank or credit union, you can explain to the lender in-person your circumstances that led to bankruptcy and try to negotiate refinance of your mortgage. The lender can scrutinize other factors such as length of time as a customer and employment history. The lender might ask you for a local co-signor on your loan.
Usually the waiting period for mortgage through Fannie Mae is two years following bankruptcy, whereas Freddie Mac is stricter and the waiting period can range up to 5 years determined by the circumstances of your bankruptcy. They have various documents requirements regarding your income, employment and credit history. You can get help from mortgage professional determining your qualifications.
To ensure that your re-application for mortgage goes smoothly, you can take some extra steps. You make sure that tax liens are removed. You can do extra work to save good amount of money during waiting period and pay more down payment, say 3.5% for a FHA mortgage, it will also help you with better interest rate for the remaining repayment period.
To conclude with, we can say that although a mortgage following a bankruptcy is difficult, you can take right measures and make it possible. You can also check latest sign up guide at here.
- Mortgage Companies that Deal with Bankruptcies/ list 2018
- Fastest Mortgage Pre Approval/ application
- Qualifying for a Mortgage after Bankruptcy/ Re-apply
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