If you've filed for bankruptcy, you're certainly not alone. In the 12 months ending 31 March 2010, a total of 1,057,686 American's filed for chapter 7. You'll normally be discharged after a period of just four months. Once released from its confines, you may be able to get a discharged bankruptcy mortgage more quickly than you ever imagined. The primary interest of the lender is to protect its capital in the event of default, not to stop you from borrowing money. Help them achieve this objective and you're likely to be approved.
Use a Professional Mortgage Broker when Buying a Home After Bankruptcy
Although the services of a mortgage broker add up to 1% of the cost of buying a home, it makes it easier to find the right discharged bankruptcy mortgage. When you have really bad credit, the variety of mortgage deals available to you is restricted. Brokers have access to useful industry contacts and can also trawl the market for a special, low interest deal for bad credit clients.
The charges aren't usually taken up-front and can be added to the principal. You need to make an assessment regarding whether the money you stand to save is greater than the difference between the best deal you can get combined with any fees for securing the loan through a mortgage broker.
A Discharged Bankruptcy Mortgage Requires a Larger Down Payment
Buying a house and home refinancing after bankruptcy is more difficult. However, you can substantially increase the likelihood of approval by paying down a larger house deposit when buying home after bankruptcy. If you don't have enough money set aside, take steps to raise a sufficient down payment. If you can pay down upwards of 25%, buying a home after bankruptcy should be relatively straightforward.
A larger house deposit indicates to the lender that you're more committed to buying a property. Given that you have a history of bad credit, it is important to minimize the risk that you pose to the lender's balance sheet. A higher house deposit helps because, if you are unable to make the repayments, the lender is able to foreclose and recover the loan, interest, charges and administrative expenses.
Despite the provision of additional equity, you'll still be charged a higher rate of interest on a discharged bankruptcy mortgage. This is because you're statistically more likely to default on the loan. Lenders, on average, have to dedicate additional time and effort to administering your account. You can reduce payments later on through home refinancing after bankruptcy once you credit starts to improve.
Refinance After Bankruptcy when Your Credit Score Improves
You've been discharged from chapter 7 and are now paying your credit cards, car loan, student loans and mortgage punctually. This will be reported to credit reference agencies (Experian, Equifax and TransUnion) so your credit will start to get better. Your higher credit score and level of home equity means that you can refinance after bankruptcy at a more affordable rate.
There are other things you can do to improve your credit. Consider using savings to pay down debt, fixing credit report errors, using obsolete cards occasionally and avoiding using more than 30% of your credit limit on a single card. These steps will mean that you won't need a discharged bankruptcy mortgage a few years from now. All you need to do is make your repayments on time.
Sources
"Bankruptcy statistics." US Courts.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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