Is refinancing during bankruptcy possible? Absolutely, and here is how you go about it. During bankruptcy, it is a common misperception that you can not refinance your existing residence. There are several ways to refinance your home, improve your monthly cash flow and move forward to a life of financial security.
Note, this page focuses exclusively on refinancing during bankruptcy. If you are interested in some of the other refinancing options or articles, see the links below.
OK, on with the refinancing during bankruptcy details. Here are some tips on how to refinance your home successfully during bankruptcy:
During Bankruptcy, Not All Lenders Are Created Equal
When it comes to refinancing during bankruptcy, every lender has different guidelines and regulations. Some lenders don't do any financing at all for ex-bankrupts, while others require some re-established credit and a good FICO score to refinance your property. It is vital that you enlist the help of a qualified mortgage professional, as they will know what each lender requires and who will offer the best possible loan product to suit your particular case. Some lenders will even allow you to refinance when you are less than a week into bankruptcy.
Be Careful, but don't shy away from Sub-prime Lenders
Since the financial crisis started, people have come to associate the term "Sub-Prime Lenders" as the biggest problem with society. It is true that bad sub-prime loans caused one of the biggest financial downfalls the world has ever seen, but it doesn't mean the idea behind sub-prime loans is a bad one. Sub-prime loans exist to give loans to people who have the capability of paying off a mortgage from their income, but cannot verify their income by traditional means or have had some past credit issues. There is instability to sub-prime loans that cause lenders to have to charge an interest premium to ensure that they get paid sooner rather than later. If your qualified mortgage professional, can only qualify you for a sub-prime loan, do a careful evaluation of your monthly obligations. The most important thing that you need to determine is if the monthly payment of all your debt consolidated will be less than what you are paying right now, and if this is the case a sub-prime loan is a good option to consider.
Consider if a selling your home may be better than refinancing
After you have determined what your monthly payment will be, you need to consider if you can realistically afford this payment. Ask your mortgage professional how long they expect it will be until you can qualify for a more reasonably priced mortgage. If the time period is short, consider developing ways to earn extra income to supplement your mortgage. This could include adding a roommate or taking on a second job. If the time period until you can qualify for a better mortgage is a more extended amount of time and/or you have no other means of income you will need to look at selling your home. Find a good realtor and explain your circumstance so he can arrange for a timely sale.
What if I'm already in foreclosure?
Many times there are cases where you need to refinance during bankruptcy and the legal process had already begun to head towards foreclosure. There are still loans that can help you. A foreclosure bailout loan serves this purpose. As with many loans involving an individual refinancing during bankruptcy, the lender is looking for a strong equity position of about 30%.
Refinancing during bankruptcy is a process that takes patience, flexibility, creatively and qualified professionals. If it is necessary to do this, find a professional and start the process as soon as possible, so you will suffer the least damage to your credit and obtain the most favorable financing.
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