How to Refinance a Home Mortgage After One Year of Bankruptcy Payments
Typically, homeowners who have substantial equity in their homes choose to file Chapter 13 bankruptcy to keep their homes and their equity. If you're in this situation, you can use that equity to qualify for enough refinancing to pay off remaining bankruptcy debts in your repayment plan and improve your credit history. The Federal Housing Administration will consider approving borrowers to refinance a home mortgage after borrowers make one year of bankruptcy payments in a timely and verifiable manner.
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Instructions
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Assess your financial health. If you have consistently made all bankruptcy payments in a timely manner, your credit rating may have already improved slightly. Continue to make payments to all creditors and avoid closing any credit accounts, which may lower your credit score. If you apply to get refinancing through FHA, you need at least two open lines of credit.
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Contact the bankruptcy trustee assigned to your case. You need written court permission for obtaining new loans while still paying on a Chapter 13 bankruptcy. You must show proof of ongoing effort to re-establish an agreeable credit rating, prove financial ability to make the payments on a new loan, thoroughly explain the circumstances leading to your bankruptcy and have a steady job, preferably with the same employer for a minimum of two years.
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Consult with a mortgage broker to evaluate your options. A mortgage broker often has access to hundreds of lenders to find the best interest rates and terms for someone in your situation. After a bankruptcy, you are a high credit risk and might be limited to sub-prime lenders (bad-credit lenders). Such lenders have inflated interest rates and higher loan costs.
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Apply for an FHA refinancing loan if you meet the eligibility requirements (at least one year of documented timely Chapter 13 payments). Check your most current credit report for accuracy before applying, and notify the credit reporting agency immediately about errors or outdated items. Get rate quotes online or start the application process by calling an FHA lender (see Resources).
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Shop around for a sub-prime lender if you do not qualify for an FHA refinance. On your own or with the assistance of a mortgage broker, talk to a minimum of three lenders to compare terms and fees, evaluate prepayment terms and penalties (if any) and ensure the lender's concern about your realistic ability to repay the loan, rather than only being interested in collecting all the fees (be wary of "upfront" fees).
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References
Resources
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