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Yes, it’s possible to get a mortgage refinance after bankruptcy. The biggest drawback is that the process takes longer because you have to wait up to four years after your bankruptcy debts are discharged. Nevertheless, filing for bankruptcy does not bar you from the possible refinancing savings.
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Note from the Editor: This article’s content is solely based on the author’s opinions and suggestions. It might not have received approval from any of our network partners through reviews, commissions, or other means.
Yes, it’s possible to get a mortgage refinance after bankruptcy. The biggest drawback is that the process takes longer because you have to wait up to four years after your bankruptcy debts are discharged. Nevertheless, filing for bankruptcy does not bar you from the possible refinancing savings.
The type of bankruptcy matters: Chapter 7 vs. Chapter 13
There are six different types of bankruptcy; Chapter 7 and Chapter 13 are the two most popular for individuals. Here’s how they differ:
How long do you have to wait to refinance a house after bankruptcies?
The length of time depends on the type of loan and bankruptcy filing you have. If you can demonstrate that there were extenuating circumstances, you may be able to refinance sooner than the standard waiting period in some situations. Extenuating circumstances are defined by Fannie Mae and Freddie Mac as uncontrollable occurrences like divorce, significant medical expenses, and job loss.
When to get a mortgage refinance after bankruptcy (and when to not)
The decision to refinance your mortgage depends on what you’re looking for and how much it might cost you.
When to get a mortgage refinance after bankruptcy
If you can reduce your interest
Mortgages typically involve large sums of money and long repayment terms, so even a small reduction in your interest rate can have a significant impact on the total amount of interest you pay. It can also be beneficial to refinance to a shorter term, such as 15 years.
If you need lower payments
If you make your mortgage payments more manageable after filing for bankruptcy, it might be worthwhile to refinance. You might be able to accomplish this by obtaining a lower APR and/or extending the loan term. However, keep in mind that extending the term might force you to pay significantly more in interest over the course of the loan.
If you need to get cash out
Borrowing against your home can be a cost-effective way to borrow money if you need a certain amount. The loans with the lowest interest rates are typically those secured by real estate.
When to not get a mortgage refinance after bankruptcy
If your credit is not recovered yet
No magic wand exists that can instantly repair someone’s credit history across all three credit bureaus. Rebuilding credit takes time. You probably cannot obtain a mortgage refinance if the waiting period hasn’t expired. Your interest rate might be too high to make refinancing a good idea if your credit hasn’t fully recovered.
If you’ll move before your break-even point
Typically, mortgage closing costs range from 2% to 6% of the loan amount. It may take several years to reduce your interest payments by an amount sufficient to offset the cost of refinancing. If you move before you break even, you’ll lose money.
If the costs are too high
Refinancing after bankruptcy might not be worthwhile due to closing costs, interest rates, and the total amount of interest owed over the course of the loan.
How to run the numbers
You’ll need information from your existing mortgage, and you should have a realistic idea of the terms, interest rate, and other costs of your refinance loan.
Then use a mortgage refinance calculator. Refinancing costs might not be recovered for several years. Here’s an example of how to calculate the break-even point.
How to get a mortgage refinance after bankruptcy
Verify that everything is in order, that the waiting period has passed, and that you are eligible to refinance your mortgage following bankruptcy. Here is a guide to mortgage refinance requirements if you are ready to proceed in that regard.
Shop around and apply
Every lender views risk and processes applications a little bit differently. Shop around online to see what lenders are offering. Pay close attention to the costs and rates they impose. Once you’ve narrowed down your options, read some reviews and take customer satisfaction ratings into account.
Then apply to a few lenders. As long as you submit all of your applications within a 14-day window, applying to multiple lenders won’t damage your credit any more than applying to just one. Customers are permitted to use this window for rate shopping by the three major credit bureaus.
When you receive offers, compare them. Choose the company that offers the lowest interest rate up front, or inquire about potential negotiations. Tell a few of the lenders that you are considering other offers and request that they increase their competitiveness.
TIP: Lock in your mortgage rate
A mortgage rate lock, which can last anywhere between 30 and 60 days or longer, is a lender’s assurance that the rate they quote you will be valid for that amount of time. An interest rate lock this year will be particularly crucial to stop your interest rate from rising because the Federal Reserve is predicted to raise national rates several times in 2022.
Get a home appraisal
A home appraisal is a qualified professional’s assessment of the value of your house. The cost of the appraisal is typically ordered by a mortgage lender and added to the closing costs.
Close on the mortgage refinance
Every mortgage, including mortgage refinancing, has a closing. Before contracts are signed and money is exchanged, everyone has the chance to double-check all the paperwork during this process. Bring identification and any necessary funds, usually in the form of a cashier’s check, with you when you go to sign.
Alternatives to refinancing after bankruptcy
Today’s Refinance Rates APR as low as
Learn how to reduce your mortgage payment with these money-saving suggestions for what is probably your biggest monthly expense.
Find out how much it will cost to refinance your mortgage to see if you can save money and whether it will be beneficial for you.
Although there is no set number of times you can refinance your home, doing so too frequently can be expensive and risky.
FAQ
How long do you have to wait to refinance a house after Chapter 7?
Waiting Periods for Chapter 7 Bankruptcies Borrowers must wait at least two years after the discharge or dismissal date before refinancing government-backed loans such as those from the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).
How hard is it to get a house loan after Chapter 7?
Unfortunately, your credit will also take a major hit. After a court discharges or dismisses your Chapter 7 bankruptcy, you must wait at least 4 years before you can be approved for a conventional loan. Government-backed mortgage loans are a bit more lenient.
Can I refinance if I did not reaffirm my mortgage?
Reaffirming your loan is not necessary in order to refinance, as is actually the case. There is no law that says anything like that. The obstacle is just the bank’s policy; it is not a law. They might have decided not to offer refinancing to those who didn’t choose to reaffirm.
Can you refinance with an active bankruptcies?
The good news is that you can refinance your mortgage loan even if you’re currently filing for bankruptcy. Finding a lender can be difficult for those who are already in an active bankruptcy, and you will need to get the court’s approval before the agreement.