Refinancing your mortgage after declaring bankruptcy can seem like an overwhelming task; however, the task is easier than you think. Six months after completing your bankruptcy you can qualify for a decent mortgage rate if you’re willing to invest the necessary time. You can actually use your mortgage to rebuild your credit after your bankruptcy.
Prepare Your Credit Before Refinancing Your Mortgage
As soon as your bankruptcy is completed, take six months to prepare for refinancing your mortgage loan. Start by working on building a favorable payment history with your existing lender. Take out a credit card and maintain a low balance while making all of your payments on time. Open a savings account and try to put money away each month; the more assets you have to list on your application, the better off you’ll be when refinancing your mortgage.
Shop for a Bad Credit Lender
Because you have a recent bankruptcy on your record you will most likely have to find a subprime lender when refinancing your loan. When comparing loan offers from subprime lenders, request a copy of the Good Faith Estimate for each loan you consider. Plan on paying a few percentage points higher than a homeowner with good credit; however, you need to be careful that your lender does not take advantage of your situation when refinancing. Carefully shopping for the best lender and comparing loan offers using the Good Faith Estimate will help you avoid many of the mistakes homeowner make when refinancing after a bankruptcy.
Once you’ve refinanced your mortgage loan you need to concentrate on building your credit. After a period of two years of making all of your payments on time and maintaining low balances on your credit cards you will have built up sufficient credit to qualify for a mortgage from a traditional lender. During this two year period carefully watch your credit reports for any mistakes or anything resurfacing from your bankruptcy.
You can learn more about Mortgage Refinancing after bankruptcy, including costly mistakes to avoid with our free, six-part mortgage tutorial.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
