Bankruptcy and Your Mortgage
Bankruptcy can make it difficult to obtain a loan home loan; nevertheless, it is possible to get financing after bankruptcy. Any bankruptcy is registered with public records. This information list for seven years following Chapter 13 bankruptcy and stays on record for ten years following the filing date on Chapter 7 bankruptcy. A bankruptcy lawyer helps you put your finances back on track with qualified bankruptcy assistance.
After going through a listing period, a bankruptcy will no longer show on your credit report. If a buyer is unwilling to wait for the information to disappear from the public record, they must re-establish credit while saving money to make a down payment. In some instances, getting a better lending rate takes patience. Waiting is the best thing and may prove more affordable. This sometimes equates to more home for the money.
Time Period for Waiting:
Each bankruptcy requires a different waiting period depending upon the bankruptcy type: Chapter 13 or Chapter 7. The mortgage type also has a bearing on the loan. A Gwinnett County bankruptcy lawyer can act as a legal guide throughout this procedure.
Choice of Lenders:
Typically, a person making an application for a Freddie Mac finance loan or a Fannie Mae mortgage loan would be required to wait at least two years before they would be considered; this is after the discharge date. However, certain conditions need to be met.
Finding a lender after a bankruptcy is not impossible but certain lenders might require waiting periods beyond conventional lender requirements. If making application for government loans. The wait may be as little as a year after the bankruptcy dates, particularly if a borrower is eligible for VA or FHA funding. However, if a deed in lieu of foreclosure, the wait for a loan may be prolonged. Finding money at an affordable price is the problem for consumers after a bankruptcy. Much depends upon how much a borrower is willing to give up for a loan.
Applying for a loan the day after a bankruptcy is remedied, is possible. No law prevents this but cost is higher. It is financially better to work through the waiting period, borrow from a conventional lender for cheaper financing, and lower payments. Subprime lenders offer loans at higher rates. By waiting and applying to a conventional lender, a borrower can save a great deal of money. Subprime lenders (B-C-D) are ready with mortgage financing for those with a credit score of 580. However, consumers pay dearly for the convenience of these loans. Carrying interest rates as high as 15%, subprime loans increase home cost way above true value. Other stipulations are administered: no late payments for at least 12 months on rentals and the ratio of loan to value are much higher.
When carrying a 30-year mortgage, this type of loan can become an expensive way to finance a home. Waiting may be the best option. A subprime loan does not allow early payment, may include balloon maturities and costly refinancing. Initial payments may appear low but can escalate to as much as 50% making payment difficult to maintain.
A better option than financing through subprime or conventional means is to gain funding through a seller. Thousands of people buy homes directly from the seller and avoid high-interest rates and expensive fees. This mode of financing is more flexible and eliminates waiting periods. Once the timeline is reached for the ending of any waiting time, a consumer can seek conventional funding. Include a clause for this alternative in the contract.
Leased to buy presents thousands with the opportunity to buy a home, place all or a portion of rent payments towards home purchasing. List the date of the wait time and construct the lease-buy agreement to reflect the time you will be eligible for a conventional loan. At the end of the bankruptcy-waiting period, apply for a conventional loan.
Finding a co-signer offers alternative mortgage arrangements. A family member may be willing to cosign a loan and allow you to pay. This is one way to obtain great interest rates and once wait terms are done, apply for independent financing, relieving the relative of the loan. This is not a casual request, therefore, carefully think through payment arrangements and follow through.
While waiting for the end of the bankruptcy period, take the opportunity to rebuild your credit rating. This will place you in a position to get better interest rates on a mortgage.
Rebuilding Your Credit:
Credit scores are low after a bankruptcy but truthfully speaking the scores are already down by the time the consumer reaches bankruptcy. Unpaid bills, rents and credit payments are listed but are wiped out after bankruptcy ends. This provides the chance for credit renewal that should be started directly after the process of bankruptcy has started. The option of debt elimination will be unavailable for former bankruptcy applicants for years. Therefore, every opportunity to rebuild credit should be established.
Learning to manage credit brings a higher credit score. This creates confidence with the lender; showing a borrower has learned to responsibly manage credit. The effort offers borrowers an opportunity to obtain lower interest rates on loans and lower monthly payments. High credit scores ease the struggle of mortgage loan access.
Credit is an important consideration when applying for a mortgage. However, there are other things that enter the process: debt-to-income ratio, employment background, adequate down payment and understanding government agency regulations.
Job stability is an important requirement. Maintain the same job situation consistently at the same salary level for a period of a year or more; this improves loan chances.
Debt Income Ratio:
After a bankruptcy, a DTI or debt-to-income financial ratio gets better. This is an important measurement of ability to pay. By eliminating bankruptcies and unsecured debts, the ability to obtain a loan reaches an increased level.
Many mortgage companies require down payments. These monies protect lenders when borrowers do not repay funds or prices decline. The bigger the down payment the smaller the loan, a larger down payment represents greater fiscal responsibility. Each lender has a required amount but the norm is 20%.
Many pay 3% for a down payment; however, after bankruptcy, more money may be required. Placing a larger down payment may improve interest rates and loan amounts. Being prepared to pay more than the minimum amount is best for the buyer when loan shopping.
A savings account is not the only way to acquire money for a down payment, a loan of a gift from relatives may be an option. A loan assistance program is also available for some borrowers.
Qualifications for FHA, VA, Fannie Mae and Freddie Mac Home Mortgage Loans:
Information and stability are important assets when applying for a mortgage. Once credit is rebuilt, and bankruptcy is discharged, the time to obtain a mortgage has arrived. Carry copies of tax forms showing at least two years worth of income, bank records, pay stubs, assets and a copy of discharge of bankruptcy. Also, be prepared to insert a written document on why it was necessary to go into bankruptcy and how you plan to avoid the same difficulties.
Two of the governments lending agencies have a four-year waiting requirement, Freddie Mac, and Fannie Mae. Fortunately, if certain criteria are, met the time limit can be as small as two years. Consideration is based upon individual situations.
The four-year waiting time for Chapter 7 is required by Fannie Mae. Nevertheless, if it is documented that special circumstances should reduce the waiting time, a loan can be obtained in less time.
The major government lenders separate discharge and dismissed times for Chapter 13 bankruptcies. The differences are as follows: two years and four years with Fannie Mae. Foreclosures involve steeper waiting time, an added year. A two-year plan allows for a successful finish of Chapter 13 discharges.
Fannie Mae along with Freddie Mac has enlisted arrangements for special circumstances. This provision reduces wait time on foreclosures by a year and on bankruptcy, two years.
Extenuating circumstances creating reasons for foreclosure or bankruptcy are related to things that could not be helped. Illness, loss or income through economic upheaval, the circumstance should indicate a very limited chance or recurrence and instances must be isolated. The document is termed a “cry letter”. The document is required to show things were not preventable. Other reasons are a sudden surge in expenses. Any of these would cause poor credit results.
A bankruptcy lawyer helps clients prepare for the legal waiting time of bankruptcy. Lenders look closely at the reasons bankruptcies happen. Income loss or family tragedy can push a person into bankruptcy. Identity theft and other forms of fraud plague some. These difficulties are validated before they are used for consideration in mortgage loans. The bankruptcy lawyer can aid clients in creating a letter that aids in validating these events. Remove the problems blocking the loan for a beautiful home.
Lending bylaws are the same for both governmental lending agencies. Documents are backed by independent and qualified sources. Hospital bills, proof of divorce or the loss of a loved one. These hardship letters tell the story of what might have started the financial spiral of a consumer. Lenders are looking for assurance that any investment they make will be repaid.
Federal Housing Administration lending services are designed to accommodate those who do not qualify for conventional lending services. These consumers may lack the credit scores that offer them low-interest rate loans. The rules instituted by the FHA do not require a certain credit but lenders have their own scale for credit scores. Fortunately, the FHA shows more leniencies with special circumstances than Freddie Mac or its counterpart Fannie Mae.
- Chapter 7 bankruptcy participants are eligible for FHA loans in two years if they can show good reasons why they have suffered a bankruptcy. This is reduced to 12 months if reasonable cause is demonstrated by the borrower for bankruptcy. The public is not penalized when circumstances push them into financial discord. Hospital bills force people to sell homes, lose jobs. Family difficulties sometimes push people into destitution. Under these circumstances, if continuous employment is obtained and reasonable fiscal responsibility is shown, a person can recover from bankruptcy. If it is fairly assured, that the instance that caused the problem may not restart, a person has a very good chance of getting a loan.
- A Chapter 13 discharge recipient applies only after 24 months for a loan. The Federal Housing Association is given more room to negotiate loans. This governmental lending agency can if it chooses loan money to a Chapter 13 borrower before discharge. The person applying for a loan must obtain permission to do so in writing. All financial obligations for at least a year must be current. The lending system is regulated to help as many people as possible to buy a home. It is a dream for many and lenders work to make homeownership happen.
FHA loans are insured mortgages and are not allowed on a foreclosed home. Homes with deed-in-lieu are also forbidden properties if this happened in a three-year period. However, this stipulation does not apply to a primary residence. The rule for extenuating difficulties meets the FHA home guidelines. People moving to other areas do not receive the benefit of these rules of circumstance.
The FHA offers anyone the opportunity to obtain a home. A credit profile is presented and evaluated by the lender. If the applicant is reasonably qualified, they have the opportunity to acquire a loan. The VA will also, make the effort to finance if the situation is proven a hardship case, discharging, 12 to 24 months if circumstances could not be helped.
The experience of a bankruptcy lawyer can direct clients to an acceptable lender and aid them in expediting their bankruptcy. Clients can obtain letters of hardship and have other documents explained by attorneys. Clients are assisted with important documents, creating an easier path for the reconstruction of their credit history. Bankruptcy does by any means stop a person from buying a home, with proper planning a loan can be obtained.