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Can I Refinance My Loan After a Bankruptcy Discharge?
April 27, 2017

Yes, once you are free and clear of your obligations, home refinancing is possible after a bankruptcy. Here we’ll discuss several factors that affect how easy the process will be and how you can position yourself so you are more attractive to lenders.

Your eligibility for home refinancing depends on several factors:

  • The type of bankruptcy: Chapter 7 or Chapter 13
  • Market value of your home—does it still exceed the balance on your mortgage?
  • Are you on the right path as far as your finances?
  • Your lender

Prove your finances are back on track

Proof of Savings!
You can improve your standing, but it takes time and a proven attempt to rebuild your credit. While it’s true that Chapter 7 bankruptcy will leave a stain on your credit report for up to ten years, the effects of Chapter 13 should end after seven. Don’t let that get you down. If you make prompt mortgage payments, soon enough you will work your way back to a clean slate and your bankruptcy will be a thing of the past.

Your goal is to show that you can handle your existing mortgage and living expenses. Don’t make it harder on yourself by opening new accounts.

How can you best position your application for home refinancing?

Here’s what you can do. Provide documentation that proves:

  • You earn a secure income
  • Your spending is controlled
  • Your household spending is appropriate
  • Consider writing a hardship letter that indicates a personal reason, such as a death in the family, for this “one off” situation

Reaffirm secured debts

When it comes to refinancing, if you’ve already reaffirmed debts such as auto loans and home mortgages, you will be better positioned. Here’s why. The last thing you want is for other debts to be a limiting factor that affects your eligibility. Some loan officers might decide it’s a complexity they want to avoid. If you were to run into this, you could always seek a different lender, of course. The only time we would advise that you don’t reaffirm is in the case where the current balance on your mortgage is greater than your home’s market value.

Improve your credit score

As you probably know, your credit score hugely influences what you’ll pay for a home loan. FICO, a leading credit scoring company, made changes to the credit score model that bring a silver lining. First, medical bills no longer carry as much weight as they had been previously. Second, collections you’ve paid won’t count.

The major take-away here is that refinancing after bankruptcy is possible. To help your credit score and keep your financial affairs in order, the best thing to do is pay bills on time. Then when you go to apply to refinance your loan, you’ll enjoy the lowest interest rate possible.

Ready to refinance your loan? Call Golden Oak Lending today to inquire.