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Can you refinance your mortgage after a bankruptcy?

Are you thinking “Can I refinance my mortgage after bankruptcy” If yes, then you should know that after a bankruptcy, you can very well refinance your mortgage loan for a reduced rate. It would help you lower the monthly payments on your mortgage loan.

Why to refinance mortgage after a bankruptcy

After a bankruptcy, you may have to refinance your mortgage loan under certain circumstances. It may happen that your secured debts were not included when you filed a bankruptcy. In such a situation, you can refinance your mortgage loan after the discharge of bankruptcy. This would help you lower your monthly mortgage payments. Even if you have paid off your mortgage arrears through bankruptcy (Chapter 7 or Chapter 13), you can refinance the remaining mortgage balance into a lower interest rate to make your monthly payments affordable.

When you can refinance mortgage after a bankruptcy

If you’re thinking “Can I refinance my mortgage after bankruptcy”, then you should know that you have to wait for sometime before you can refinance your existing mortgage loan. In case of a Chapter 7 Bankruptcy, you need to wait for 4 years (after bankruptcy discharge) in order to refinance your existing mortgage with a conventional home loan. However, you can refinance with an FHA mortgage only after 2 years after a Chapter 7 Bankruptcy discharge. In case of Chapter 13 Bankruptcy, you can refinance your existing mortgage with a conventional home loan after 2 years and with an FHA mortgage loan after 1 year of bankruptcy discharge.

How to repair credit record after a bankruptcy

After a bankruptcy, it is advisable that you repair your credit record before you refinance your mortgage loan. It would help you take out a mortgage loan with better terms and conditions.

* Apply for a secured credit card – If you’re not able to take out an unsecured credit card after a bankruptcy, it is advisable that you apply for a secured credit card. You can take out a secured credit card by depositing a certain amount that becomes your credit limit. Use the card to purchase items and pay off the balance at the end of every billing cycle. Having revolving credit can help you improve your credit score.

* Do not incur debts – After a bankruptcy, you should plan a budget and manage your finances in a way to not incur debt. Even if you charge your credit cards for making purchases, make sure you pay off the outstanding balance every month. This would increase your credit utilization ratio and in turn, make you creditworthy.

* Dispute errors in your report(s) – You should order your credit reports from 3 major credit bureaus and check for errors, if any. If there is inaccurate negative information in your reports, then dispute them with the credit bureau(s).

Apart from above, you should also calculate your debt-to-income ratio before refinancing your mortgage loan. The lenders may offer you a mortgage loan with suitable terms and conditions if your debt-to-income ratio is low. This ensures that you’ll be able to make the monthly mortgage payments on time.