Clear Talk About Mortgages

Common Questions about Mortgages after Bankruptcy

How long do I have to wait to get a home loan once the bankruptcy is discharged?
A large number of home loan lenders do not approve applications from persons with a bankruptcy discharge within the past two years. Nevertheless, several lenders will consider a loan application from individuals with more recently discharges. In fact, you can find some lenders who approve loan requests one day after a discharge.

How long will the bankruptcy affect my chances of mortgage loan approval?
A bankruptcy remains on your credit file for ten years. Throughout this time, the majority of home loan lenders will consider you a big risk and charge a higher rate. As your credit improves, you become less of a risk, and a number of mortgage lenders will eventually view you as a prime applicant. On average, it can take five to six years before you can qualify for a low rate mortgage.

Do persons with a bankruptcy receive the same level of quality lenders as a person with good credit?
Yes. Some mortgage lenders offer both bad credit and prime home loans. Each loan applicant is treated with respect and dignity, and the lender will do everything in their power to get you approved for a loan. Persons who have declared bankruptcy and individuals with perfect credit must endure careful review, wherein the lender determines whether they are able to financially afford a specific loan amount

Does the type of bankruptcy make a difference in the loan process?
Every person who files bankruptcy is considered a high risk. The majority of mortgage lenders do not sub-classify high risk applicants. Thus, the type of bankruptcy filed will usually not make a difference.

Are my lender choices limited after I file bankruptcy?
Yes. The majority of homebuyers have not filed bankruptcy. Thus, there are more resources and loan programs available to these persons. Nonetheless, plenty of lenders and brokers provide sub prime loans, which assist individuals with bad credit, recent bankruptcies, etc.

Will the mortgage lender request a lot of details about the bankruptcy?
Yes. Some individuals with a previous bankruptcy often feel attacked by the mortgage lender. Be assured that the lender handles every bankruptcy applicant the same. Remember, the lender is taking a huge gamble with you. Prior to lending hundreds of thousands of dollars they want to make sure that the borrower is prepared to repay the money.

Do persons with a bankruptcy have more requirements?
Yes. A bankruptcy is a serious financial and credit mishap, and mortgage lenders will not approve a loan request lightheartedly. Your likelihood of default is much higher than a person with A+ credit. Expect the mortgage lender to ask a lot of detail information about your previous financial situation. The objective is to try and assess whether you consider bankruptcy an easy fix for money problems. If so, you're twice as likely to file bankruptcy again. The lender will ask for bankruptcy paperwork, discharge statement, petitions, etc.

If a new mortgage company purchases the loan, will they receive information about my situation?
Yes. At closing, you will sign a document that allows the lender to sell or transfer the loan servicing. Every time a new mortgage company starts servicing your loan, the previous lender will send the entire file to the new lender. Thus, the new loan company will receive all information about your previous bankruptcy, current finances, etc. Before servicing a loan, lenders want to carefully assess the situation and learn about any potential risks.

Will I be able to refinance a bad credit home loan in the future?
Yes. Once the loan is approved, and you establish a good payment history with the lender, you can refinance and qualify for a better rate in the future. The tricky part is getting approved for the initial loan. Make timely payments each month and the home loan lender will continually provide the credit bureaus with favorable reports. When the time comes to refinance the mortgage, you'll be able to have your choice of lenders.

Can I get approved without providing a lot of information?
This depends on how much time has passed since the discharge. If you filed bankruptcy within the past two or three years, the lender may request detailed information. On the other hand, if it's been five or six years since the discharge, and you've effectively improved your credit score, the mortgage lender may consider your bankruptcy a thing of the past and not request detail information. Some lenders work specifically with bad credit applicants, and do not require a lot of information. Nonetheless, before applying for the loan, be prepared to provide detail information about your bankruptcy and current finances.

Will my reason for filing a bankruptcy make a difference?
The majority of lenders will not consider bankruptcy explanations. They are more concerned with the fact that you filed, rather than the circumstances that led to the action. Besides, there is no way to authenticate accuracy of a written statement. A person with uncontrolled spending habits can easily blame the bankruptcy on loss of employment or sickness.

Do the mortgage loan features differ for persons who have filed bankruptcy?
On average, individuals with a recent bankruptcy pay a higher interest rate, and the lender may request additional face-to-face interviews. Mortgage loan agreements can include a variety of clauses or stipulations. For example, some bad credit loans feature a demand clause, whereas others require applicants to enroll in automatic payment withdrawal programs.

When the loan is transferred to a new lender, will the lender ask for new information or make loan changes?
Although the mortgage lender has the right to ask for new information from you, the chances of this happening are very slim. Before agreeing to service the loan, the lender will have reviewed your entire file. They are aware of your past credit mistakes. Any questions or concerns will be addressed prior to the lender completing the transfer. On rare occasions, the new lender may inadvertently overlook a specific loan aspect, or the old lender may neglect to provide complete information. In this instance, they new lender may contact you and inquire about your situation. Again, this is a highly unlikely occurrence. Secondly, once a new lender begins servicing your loan, they cannot alter the loan agreement without written permission from you.

Will the real estate agent learn about my bankruptcy?
No. Information about your bankruptcy is not revealed to the real estate agent. The mortgage broker or lender receives detail information about your pasts and current financial history. In fact, mortgage brokers and lenders have little contact with the agent. Besides, privacy laws help protect your personal information. Therefore, even if the broker/lender and realtor have a friendly relationship, the broker/lender is required to keep your information confidential. Borrowers can take legal action if the broker or lender breaks the confidentiality agreement.

Will the seller know about my bankruptcy?
No. Again, the only persons who will know about your bankruptcy and other personal financial information are the broker or lender. Your past or current financial standing is none of the seller's business, and should not affect their decision to accept your offer on the house. After you get approved for the mortgage loan, there is no other reason to discuss your bankruptcy.