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The scars that filing for bankruptcy can leave on your credit history can mean major loans become near-impossible dream. But for those who are hoping to buy a new home, the good news is that it is possible to a mortgage loan after bankruptcy.
Admittedly, it is not simple, but with the right moves made in advance of putting together the application, it is possible to secure mortgage approval despite bankruptcy. It seems very strange given the usual caution that lenders show when considering bad credit borrowers. But bankruptees are recognized as having a great potential by lenders because they have no other debt on their shoulders.
Perhaps that is why there are so many choices of mortgage loan available to them, with different lenders offering different mortgage packages. Here are 3 of the most popular and most affordable types worth considering.
1. For Bad Credit Borrowers
Obviously, bankruptees are bad credit borrowers, so this is a type of mortgage that suits them well. However, while available to those looking for mortgage loans after bankruptcy, they are also open to those who simply have financial issues. This means that some of the terms are not also ideal, but nonetheless is tailored for those who cannot be approved under normal circumstances.
The most significant factor in this mortgage option is the term of the loan itself. It is the reason why this package is affordable, with terms as long as 40 years meaning the monthly repayment sum is kept low. It can translate to monthly savings of as much as $250 compared to normal terms
Getting mortgage approval despite bankruptcy is also easier since it is tailored for the bad credit niche, but what must be considered is that the mortgage loan can come with an APR of 4.5%, and that means a significant amount of interest paid over the lifetime of the mortgage.
2. For Bankruptees
This mortgage option is tailored specifically for those seeking a mortgage loan after bankruptcy. This option is specifically designed for the needs of this category of borrower because the lender does more than just finance the purchase of the new home - they actually restructure their entire debt.
The idea is that the risk of defaulting is minimized as much as possible by the lender taking control of almost all financial aspects of the borrower. However, qualifying for this option depends on the type of bankruptcy that was secured (Chapter 7 or 13), and that can be a deciding factor in whether to apply or not.
Basically, while mortgage approval despite bankruptcy is very likely, a Chapter 7 bankruptee can apply after 1 year, but a Chapter 13 bankruptee must wait for 4 years to apply for this mortgage loan.
3. For FHA Qualifiers
Finally, when seeking a mortgage loan after bankruptcy, it is a good idea to seek financing through a government backed source. The FHA is a perfect option, and while they do not offer a loan themselves, they do providing security on 25% of the loan sum.
The result is that lenders are willing to lower the interest rate that they charge, thus making the loan more affordable. By consequence, mortgage approval despite bankruptcy is much more likely.
Still, it is important to consider that to secure these mortgage loans, applicants must have filed for bankruptcy under Chapter 7 and can only apply after a year.