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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