Mortgage Calculator Refinance

Even if you managed to keep up with your mortgage payments during the bankruptcy process and kept your home from foreclosure, the bank is still going to consider your credit history and hold that bankruptcy against you when you go to refinance your current loan.  

Remember, when you refinance a mortgage, you are actually applying for a brand new loan at a lower interest rate.  This means that the lender will be making les money on your loan over the long haul, and may not be willing to take a risk on you if you haven’t shown financial responsibility in the past.

Be prepare to have your lender delve into every area of your financial life for the last several years (or even further) when applying for a refinancing loan.  It will be up to you to explain why payments were missed; why you fell into bankruptcy in the first place and how you have changed your financial future.

While a lender will consider things like medical expenses, lost wages and more when reviewing your loan application, the odds are slim that anyone who has filed bankruptcy in the last 3-5 years will be able to obtain a mortgage refinance loan under today’s lending limitations, unless they can show that they have improved their credit score and saved a substantial amount of money.

Still, there is hope under certain circumstances.  For those with an adjustable rate mortgage whose rate is about to reset, a loan modification may be possible.  Not considered a true refinance since a new loan is not offered but rather the existing loan modified to better meet the borrower’s needs, a loan modification can help you lower your interest rate despite a bad credit history.

Loan modifications are easier to get these days, but you will still need to be prepared to explain to the lender how you are going to keep up with those payments.

For those who are not interested or can not get a loan modification, there are several things to consider before approaching your lender about a mortgage refinancing loan:

• Your Current Credit Score: The first thing any lender will do (especially following a bankruptcy) is to check your credit score.  If you have been working diligently over the past year or so after filing bankrupt to improve that credit score, the bank will likely take your application more seriously.  Some simple ways to help boost your credit score is to:
  
  • Get a small credit card; use it periodically for small purchases and pay it off each month in full.
  • Make all mortgage payments on time
  • Make all utility and other payments on time each month 
  • Avoid any type of long term dent (like a car loan)
• Your Savings: The fact is, any lender is going to look at how responsible you have become following your bankruptcy and that includes saving for emergencies.  In order to qualify for a new mortgage loan, you will likely have to have at least 3-6 months (maybe more) of living expenses set aside in a savings account to sue in case of a job layoff or other emergency.
• Your Home’s Equity: The more equity you have in your home, the better chance you will have of refinancing your mortgage.  Most look for at least 20% equity in a home before approving a refinance loan when a poor credit history is a concern.
• Closing Costs: Be prepared to pay all closing cost fees in cash when refinancing a mortgage after a bankruptcy.  This will cost most homeowners between $3,000- $10,000.

Even though it is possible to refinance a mortgage after going bankrupt, there are some dangers to consider. First, you will likely be forced to pay a much higher interest rate and take a shorter term than other borrowers.  This alone may make the entire refinancing process worthless.  Also, keep in mind that every time a borrower submits a credit check on you, that credit score you have been working so hard to boost will be taken down a few points.  So wait until you are ready before making an application to avoid losing credit points for no gain.  Take the time to speak with several lenders to discuss your financial history (and be brutally honest with them) to be certain you have a real chance at obtaining a loan before agreeing to the credit check.

The rules of mortgage refinancing have changed a lot during the last few years, making it more and more difficulty for homeowners to obtain new mortgage loans.  Those with prior credit problems (including bankruptcy) are definitely going to finds the road to a new mortgage a hard one to travel.  The good news is that with patience and perseverance (and a growing credit score) you will eventually be able to land a new loan. The key to success is being honest with your lender and being realistic about your chances of refinancing your mortgage right now.