How to Refinance After Bankruptcy

Bankruptcy can be very unsettling, demoralizing and stressful. The challenge of obtaining a mortgage after a bankruptcy has increased with  new regulations. But it is still possible to obtain a mortgage if you plan accordingly and take steps toward financial recovery. Take advantage of the new beginning that is offered by bankruptcy protection to your advantage to get you the mortgage that you need.

5 Steps to a Post Bankruptcy Refinance

1. Understand the difference between filing for a Chapter 7 and a Chapter 13 bankruptcy.
 

2. Prepare your financial life for a refinance. Keeping a principal residency during and after a bankruptcy,  usually requires a homeowner to continuous monthly payments. 

After receiving a discharge, you need to begin re-establishing your credit.  If you are still making payments on an auto loan, your credit score should not be affected by the bankruptcy. You might  try to get an auto loan as quickly as possible and/or apply for at least one new credit card. Even a secured card, requiring a deposit equal to the credit limit, helps you prepare a credit report for a mortgage refinance.
 

3. Get an expert opinion on your home’s fair market value. Homeowners who have had a recent bankruptcy and an LTV exceeding 75% will have a more difficult time finding a reasonably priced refinance loan.
 

4. Build cash reserves. Applicants with some even slight cash reserves appear more stable and responsible compared to those who don’t.
 

5. If you applied for a refinance fewer than two years from the bankruptcy discharge date, prepare for a challenge.  Since the economic change in 2007, the available refinancing options for homeowners with less than good credit or had a recent bankruptcy have decreased.  Homeowners should investigate and evaluate the many mortgage lenders. Though, conscientious borrowers  could still find a sensibly priced mortgage refinance loan shortly after receiving a discharge.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.