Mortgage after Bankruptcy
One of the most common myths about bankruptcy is that you will not be granted a loan again because you have been declared a bankrupt. This could not be farther from the truth. Of course, the prerogative to grant you a loan still rests with the bank, but due to competition, no bank would be foolish enough to turn you away if you fulfill their conditions for borrowing. In fact, since your debts have been discharged in the bankruptcy, your slate has been wiped clean and you are technically unencumbered by debt which makes you a suitable candidate for a mortgage.
Each state has its own law pertaining to bankruptcy but generally all states do allow bankrupts to apply for loans to buy properties. Many banks and financial institutions have special programs for you who have filed for bankruptcy. However, although the law does not prohibit you from applying for or being offered a mortgage, you may be subject to a higher interest rate or mortgage fee.
If you have a credit score of 600 and above and have not closed all your accounts, you normally would stand a chance of obtaining a 100% loan margin. Even with all your accounts closed it is not impossible to obtain an 80% financing.
To increase your chances of obtaining a loan, you could engage a mortgage broker. Those who are good will be able to negotiate with the bank on your behalf taking into consideration certain factors such as your credit score, which Chapter of the bankruptcy code you have filed under, how long it has been since your discharge, whether you are still under bankruptcy and have reestablished credit somewhere. On the other hand, if you try to obtain a mortgage by approaching the banks directly, they may simply reject you based on the normal guidelines they follow.
Legally, if you have filed for bankruptcy under Chapter 13, you are eligible for a loan but only with the court’s consent. You have to show to the court that you have been faithfully keeping up with your payments of your Chapter 13 schedule for at least a year. The margin of financing you can expect would usually be between 70 to 80%. This is known as the Loan to Value (LTV). Banks would normally also take into account your date of filing when processing your loan application.
If you have filed under Chapter 7, the factor most banks consider is the length of time since your discharge. Obviously, the longer the elapsed time, the better it would be for you.