Refinancing your mortgage after a Chapter 7 bankruptcy allows you to cash out your equity and find lower rates. You can also lower your payments by extending your loan term. Two years after your bankruptcy has been discharged, you may qualify for conventional rates. But if you need a refi loan sooner, you can find a sub-prime lender to work with you.
Timing Your Refinancing
Most financial advisors will counsel you to wait two years before applying for a new loan. Within those two years, you can reestablish your credit score to good standing and qualify for a Fannie Mae loan with market rates.
However, you can find refinancing sooner by working with a sub-prime lender. Depending on your credit score, cash assets, and income, you can find a financing package only a couple of points higher than conventional rates.
Before You Apply For A Refi Loan
Before you apply for a refi loan, check your credit report to be sure that your bankruptcy was properly discharged. Make sure accounts are in good standing and have accurate information. You can also include a letter explaining the circumstances of your bankruptcy, which can help your loan application.
Also, take the time to research lenders. Just like with any product, shopping around will guarantee that you get the best deal. It just takes a few minutes to receive loan quotes online. And you can review them at home with no pressure. While you are looking at rates, also note fees and closing costs.
Getting Better Rates
If you didn’t get the best terms or rates on your first mortgage, now is the time to find them. For the lowest payments, choose an adjustable rate mortgage. Usually for the first two to five years rates will be lower than fixed rates. Some lenders will also allow you to lock in a rate for a fee.
Interest rates can also be lowered by choosing a shorter term loan. While your total interest costs will be less, your monthly payments will be higher. Some lenders will also lower rates if you set up an automatic payment, usually debited from your checking account.
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Written by: Carrie Reeder