How a Bankruptcy Affects a mortgage

How long do I have to wait to buy a home or refinance my
current loan?

Many people have heard that you need to wait two years or more to purchase a home or
obtain a mortgage after a bankruptcy. We have some good news for you. There are
actually some mortgage lenders that will loan you up to 100% financing (no money down)
ONE DAY after your bankruptcy has been discharged (Chapter 7 Bankruptcy) or if you are
in a Chapter 13 Bankruptcy, if you can show a 12 month on time mortgage or rental history,
you may actually be able to obtain a mortgage even sooner. Your best bet is to talk to a
mortgage professional. There should not be any application fee, and the mortgage
professional should be able to steer you in the right direction

How do lenders look at me now?

The general impression people believe is that no banks or lenders will want to lend
money to someone who just had a bankruptcy, or the deal is going to be so bad it won't be
worth it to get a mortgage. This was the situation a few decades ago; however, over time
lenders started to realize something. Yes, as a potential client, there was a little additional
risk lending to people with bankruptcies; on the flip side, they realized that you, as a
bankruptcy filer, had little or no debt. Most people who have gone through a bankruptcy
don't end up doing it again, and lenders hope that the opportunity presented by your fresh
start will protect their interest in your new home.

How does this impact my interest rate?

As you can guess, there will be a higher interest rate on your loans right after bankruptcy.
The lenders do have to balance their risk. The "normal" lenders, your local banks, credit
unions, etc. will most likely not offer you a loan this soon after bankruptcy. These lenders
offer most of their loan programs off the guidelines of Fannie Mae (FNMA) or Freddie Mac
(FHLMC), which are private corporations under federal oversight to provide fair lending for
all borrowers. Their loan programs do not allow for lending to clients with a recent
bankruptcy.

Over the last 10 years or so, thousands of lenders have appeared across the country
developing more aggressive loan programs geared towards those borrowers who do not
have good payment histories, have bankruptcies, or even recent foreclosures. They
balance the risk of the portfolio of loans with more profit per loan, allowing all sorts of
loans to be made.

The way to look at obtaining a mortgage now is to see it as a "band-aid" loan. It is a way
for you to obtain a mortgage now instead of having to wait years longer. As long as your
equity situation, job status, and credit improve over the next few years, you will be able to
refinance to a better loan if the rates stay favorable. You can obtain a FHA loan as little as
2 years after your bankruptcy has been discharged. Conforming Conventional loans
(Fannie Mae & Freddie Mac) are officially 4 years after bankruptcy, but due to the newer
automated underwriting systems, some loans can be approved even sooner.

Who do I need to call to get a mortgage?

Your loan options will probably be offered only by either a Mortgage Broker or a Sub-Prime
Mortgage Lender. You can learn about the differences between mortgage brokers and
lenders by clicking here. We would really recommend a Mortgage Broker, as they work
with multiple lenders, and can shop between not only loan programs, but the lenders
themselves.
One important thing to know- You DO NOT want to work with any broker or lender. You
want to make sure you get someone who knows what they are doing when it comes to
Bankruptcy or Imperfect Credit. You can end up wasting months of your time and
thousands of dollars if you work with the wrong person. If you would like us to refer you to
one, click here for our Refer Me a Mortgage Pro Page. You will be given the information of
a mortgage professional specializing in imperfect credit loans.

What do I need to do for a mortgage?

Every loan scenario is different. For us to list every item you would need to address would
take too much time. Your best bet is to speak to a mortgage professional specializing in
bankruptcy and imperfect credit (see above).

The most important general information we can give you is to make sure you tell your
mortgage broker the full story- don't hold back on anything. Their job is to sift through
everything you tell them and find the best loan for you.