If you have a home loan guaranteed by the Federal Housing Administration (FHA) and haven't yet taken advantage of low interest rates, you may be eligible to participate in the "Streamline Refinance" program, even if you have declared bankruptcy. It doesn't matter if you declared Chapter 7 or Chapter 13; if some time has elapsed and you've behaved responsibly since filing, you may be eligible.
FHA Streamline Refinance Rules
According to the U.S. Department of Housing and Urban Development, a homeowner who has an FHA-backed loan may participate in the streamline program after bankruptcy if a minimum of 12 to 24 months has passed. Two years is the rule of thumb, but if a borrower can show that the bankruptcy was caused by extenuating circumstances he may qualify after only 12 months. The borrower must have demonstrated the utmost in financial responsibility since the filing and must also show that the bankruptcy is not likely to reoccur.
Additional Streamline Refinancing Rules
The FHA has allowed streamline refinances since the 1980s, according to HUD's website. To participate, in addition to the bankruptcy rules, the original mortgage must "already be FHA insured" and older than six months. Also, the loan must be current and must be used to lower the monthly payment. Borrowers may not take cash out of the house to pay debts or perform major renovations, although there is currently a program that will allow the borrower to take out between $5,000 and $35,000 to perform minor alterations or repairs to the property. Strict rules apply.
Benefits of Streamline Refinancing
Streamline refinancing is easy for borrowers because there is little administrative work. The home does not have to be reappraised if the borrower is refinancing the original loan amount. (It must be appraised if the borrower is rolling the closing costs into the new loan.) This is a major plus if you suspect that you may owe more than it's worth. You also may not be required to provide income or credit history verification, unless your lender requires it.
Preparing to Refinance
Although it's easier to qualify for a streamline refinance than other loan products, it doesn't hurt to get prepared. Order your credit reports and review them carefully to make sure that the items included in the bankruptcy were reported properly. Make sure you pay monthly obligations on time and in full; if a long time has passed since your bankruptcy and you've been responsible since, you're probably in good shape. Don't forget to save money toward the closing costs to avoid the appraisal.
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