There are 2 types of personal bankruptcy filings, Chapter 7 and 13. With Chapter 7, all debts are forgiven, but all assets that are not owned outright (including your home, if there is no longer equity) are sold to repay the dept. With Chapter 13, some debts are forgiven and others are part of a 3-5 year payment plan.

Get A More Attractive Loan Structure With A Post Bankruptcy Home Refinance.

You may think that because your credit has been sourced by the bankruptcy, you won’t be able to find a lender or qualify. There are lenders who are willing to do a post bankruptcy home refinance, but not usually until after 2 years. This 2 year period is actually a blessing in disguise, because during this time, you can follow some simple disciplined steps that will maked you a more attractive applicant.

Step 1 – Make all of your payments on time. Your payment history makes up 35% of your credit score. This isn’t limited to your mortgage and settlement debt. This includes your utilities, insurance, cell phones and medical bills. All of these bills are extensions of credit and most are starting to report to the 3 credit reporting agencies.

Step 2 – Continue to build your credit. Credit can be a double edge sword. Used wisely, it can help build your credit score. But, one mistake (for example, late payment) can reduce your score by 50 to 100 points. If you are going to use credit cards, use them only when you already have the money in your account to pay them off in full and have set yourself up for online payment. This way, you can pay off the debt even before your statement comes.

If you are choosing what type of credit card to use, you might want to consider a gas card. Gas is an essential expense, so you will be less likely to get carried away. Remember, carrying credit card debt is dangerous and risky and won’t necessarily help your credit score.

Step 3 – Review your credit report every 4-6 months. You are entitled to a free credit report from each of the 3 reporting agencies each year. You may order your reports directly from Experian, Transunion and Equifax. Make sure that all of your payments are being reflected accurately. Immediately address any errors. Keep great records of your payments, just in case there is any discrepancy.

Step 4 – Save. Set a savings plan and stick to it. It’s important to show that you are consistently saving something each paycheck. To help you meet your goal, have your check directly deposited – a portion into your checking account and a portion into your savings account. This will prove to a mortgage lender that you are committed, have a plan in place and are building capital for an emergency.

Step 5 – Keep your current job. The number one reason that you’ll get approved for a loan is because you have the ability to repay the debt. This means that you need to have consistent income to cover all payments. Creditors, such as mortgage lenders like to see long term, steady empolyment with consistent income.

Following these 5 steps should help you rebuild your finances and appeal to a mortgage lender specializing in post bankruptcy home refinance.

Best of luck!

My employer’s marketing materials promoted the idea of tapping into quickly growing home values for home improvements, debt consolidation, car purchases, college education and dream vacations. Consumers gobbled up these loans. Some used the funds for needs and some got in over their heads by using the funds for wants. It was the fat days of 1990′s and having more was easy.

Well, times have changed and utilizing credit in a careful manner in en vogue. Home equity loans are still available and a viable option for some home owners, so it’s time for a crash coarse in Home Equity Financing.

Two Types Of Home Equity Financing

There are 2 types of home equity financing: Loans and Lines. Both use the equity in the home and both create a second mortgage on your home. Lenders will generally require a maximum loan to value (LTV) of 80%, which means the total of your first mortgage balance and the home equity loan/line that you are applying for may not exceed 80% of the appraised valye of your home.

Home Equity Loans – The word “loan” implies that it’s an installment loan, similar in type to that of a car loan. You’ll borrow the money in one lump sum and make equal monthly installments of principal and interest to repay the debt. Once the loan is paid off, the mortgage will be discharged (eliminated).

Usually, this loan carries a fixed rate of interest, no annual fee and has minimal costs (appraisal, title search fees) at closing. This is the loan you choose if you know exactly how the money will be used and the dollar amount. Because it’s a second mortgage, the interest rate is usually slightly higher that that of a first mortgage loan.

Home Equity Lines – The word “line” implies that it’s a line of credit, similar to a credit card. The lender approves you for a maximum credit allowance and provides you with a book of checks that can be written against your line. Some may even provide you with a credit card which is tied to the line.

You may borrow up on the line and pay down as you see fit. Minimum monthly payments are usually 3-5% of the balance plus interest. The interest rate charged varies usually a certain percent over prime. Fees may include usage charges, non-usage charges, annual fees and others. Because it requires you, the borrower, to be very disciplined, the interest rate is usually higher than that of a home equity loan, but because it’s secured, it’ll be lower that a credit card.

Home Equity Financing – Weighing the Pros and Cons

It’s so important that you carefully consider how you use your home equity financing, weighing the pros and cons. Borrowing against your home puts your home at risk, so it’s best to use home equity financing for NEEDS, not wants. Home improvements are needs, vacations are wants.

Currently, cars can be purchased with very low rates, secured by the vehicle and leaving your home equity unencumbered. Student loans also have low rates and don’t require repayment until the student is out of school.

Finally, debt consolidation may be your only way to get out of the credit hole you may be in, just be sure that if you’re using your home equity financing for this purpose that you stop using your credit cards entirely…a sharp pair of scissors just may be your best friend.

You may wonder if you can even quality for a home refinance with bad credit. There are still options, but being informed and prepared can mean the difference between “approved” or “declined”.

Home Refinance With Bad Credit – Get Your House In Order

Immediately get your house in order – your credit house, that is. Obtain a copy of your credit report to determine what your score is. Annual reports can be obtained through any of the reporting agencies (Trans Union, Equifax, Experian). Scores range from 350 – 850. A target number for easy, well-priced credit is over 700, but the national average is 680.

Loans are available to those with poorer credit, but the rates and fees on these loans are typically a bit higher than those with good credit. Go through your credit with a fine tooth comb. If there are any inaccuracies, contact the creditor(s) listed and get it cleared up. If you have credit cards that aren’t being used, consider closing them out. Having credit available to you is not a bad thing, but having too much unnecessary revolving credit available can hurt your score.

Home Refinance With Bad Credit – Ways To Improve Your Credit

First – Pay down credit card debt. Creditors consider this type of debt to be very risky. It’s easy to make mistakes and inadvertently dig yourself into a hole with credit cards. Put a plan in place to make online payments on credit cards with every paycheck.

Don’t wait until the monthly statement comes, you might spend the money from your paycheck before then. Showing that you have a plan in place will be a positive to a mortgage lender. By the way, pay everything on time. The most recent 12 months of activity on your credit makes up 40% of your score. One late payment can drop your score by 50 – 125 points.

Second – Look at your credit card balances compared to the total amount available for you to use on each card. For example: You have a $2,000 balance on a card that has a maximum available of $3,000. You don’t want to carry balances on cards more than 50% of what is available. In this example, you would want to pay down or transfer at least $501 of the balance to a different card. This ratio of balance to availability makes up 35% of your credit score.

Third – Don’t allow any lender to order your credit report until you’ve told him/her your score and confirmed that they have a loan to fit your needs and budget. Too many iniquiries on your credit report can affect up to 10% of your credit score.

Home Refinance With Bad Credit – Wrap Up

Continuing to follow these steps to recovery will not only help on your way to a home refinance with bad credit, but will also make obtaining future well-priced loans a breeze. Raise your score and lower your blood pressure starting today!

Simply and obviously stated, homeowners should only consider refinance when there is either an immediate monthly savings or to provide protection from future events.

Why Refinance If I Will Have To Pay Fees Or Points?

According to a 2009-2010 study by Bankrate, the national average for closing costs for a $200,000 mortgage was $2,732. With this mortgage value, if you plan to stay in your home for 4 years or more, a rate reduction of at least 0.5% (a 6% rate down to 5.5%) will most likely reduce your monthly payments enough to make up for your fees within 4 or fewer years, with additional substantial savings (almost $23,000) over the life of the 30 year loan.

There are things to keep in mind. These calculations assume that you still have an 80% or lower loan to value (LTV). If your home has depreciated to a point of increasing your LTV above this point, refinancing will now require you to pay private mortgage insurance (PMI). PMI usually increases your mortgage payment by 1%. In this case, refinancing would be counterproductive.

Why Refinance If My Payments Are Low Right Now Or I Am Currently Making Comfortable Interest Only Payments?

“Right now” implies that you have a variable or adjusting rate mortgage. It’s safe to assume that with interest rates at or near historic lows, they’ll only go up. You need to immediately pull out your Promissory Note from your original loan package. Determine what the maximum rate increase can be on an annual and lifetime basis.

Usually rates can’t adjust more than 2% annually and 5-6% over the lifetime of the loan. Let’s take the same $200,000 mortgage from the example above. A 2% increase in your rate would increase your payment by $200 – $300. A 5% increase would increase your payment by over $600. If you can’t budget for that payment, you may have no choice but to refinance. If you will need to pay PMI after the refinance, it may still be worth it.

In both situations, you need to analyze why refinance might be a viable option. Your mortgage lender can give you the precise figures you’ll need to analyze your cost benefit. Remember, the lender is there to provide you with the facts, not to make your decisions. Do NOT agree to anything unless you fully understand your costs and the terms of the loan.

“Upside Down” Means That You Owe More Than The Home Is Worth.

Quite honestly, there are no longer lenders who will provide this type of lending on their own. There is one government program that can help some borrowers in this position. The government’s “Making Home Affordable” program has specific help for those desiring and upside down mortgage refinance.

The 3 general minimum guidelines for this program is that:
(1) you live in a 1 – 4 family home,
(2) have been current (not more than 30 days late) on your mortgage payments over the last year, and
(3) your current mortgage is either Freddie Mac or Fannie Mae guaranteed.

Get together your income and debt information and contact your lender. Tell the customer service rep that you are interested in speaking with someone about a “Home Affordable Refinance”.

If your current home loan does not qualify for the above program, your only other alternative is to pay down your current mortgage to a balance of at least 3.5% below the appraised value and refinance your home under the FHA program.

FHA allows a maximum 96.5% loan to value (LTV) and still has competitive interest rates and fees. For this to make good financial sense, you will need to be dropping your rate from its current level by a significant amount or be swapping out a variable rate loan for a fixed rate.

An important thing to consider is the fact that you may be creating an additional expense by refinancing. If your current loan was financed with a LTV of 80% or less, you probably aren’t paying PMI. PMI is Private Mortgage Insurance and is charged monthly on all loans originally bearing an LTV greater than 80%. Refinancing your debt with a higher LTV will require that PMI be added to your monthly loan payment. This addition is usually in the area of 1% of the monthly loan payment. Still, having the peace of mind of a fixing in your variable rate loan may be worth the added expense.

Approximately 20% Of Homeowners Owe More Than Their Homes Are Worth.

For some, an upside down mortgage refinance through the home affordable refinancing modification program will provide some relief. For many of us, though, careful budgeting and a patient outlook for a rebounding market will help us to create good habits for better times.

Let’s break this down to answer 3 very important questions:

#1 How Can Homeowners Refinance When Their Equity Has Been Squeezed?

The first thing to do is to get a reasonable idea of what your property is worth. It used to be that you could simply double your State Equalized Value (SEV) to get an idea of your home value. Tax assessments, however, haven’t necessarily kept time with certain devaluing markets. Websites such as Zillow can provide you with a list of homes in your area that have recently sold, so you can estimate what your property is worth.

Next, determine your Loan to Value (LTV) by dividing your existing mortgage(s) balance by your home’s estimated value. If you’re planning on pulling some of your equity out to pay off other debt or do home improvements, don’t forget to add that dollar amount to your mortgage balance(s).

Most mortgage lenders will easily refinance a property with an 80% or less LTV. An 81 – 95% LTV will require that you pay PMI (Private Mortgage Insurance) each month, in addition to your regular payment. If your LTV is 95 – 97.5%, you may need to consider a FHA loan.

Discuss your LTV with any potential lender during your first conversation. This way, he/she can provide a more accurate estimated monthly payment. Sometimes, even if rates are lower than what you’re currently paying, the potential addition of PMI will increase your monthly payments, which might not make sense for your situation.

#2 How Can Homeowners Refinance When Their Credit Score Has Been Shrinking?

Credit scores range from 350 – 850. The average score is 680, but your goal should be above 725. Anything below this number will increase the rate and fees that you’ll pay. The lower your score, the greater your challenge, so you may want to work on improving your credit score before you apply.

Get a copy of your credit report, review it and clear up any discrepancies. Pay down any debt you can and pay on time! The most recent 12 months of your credit history makes up 40% of your score, so before homeowners refinance, fix as much of your credit up front as possible.

#3 How Can Homeowners Refinance With The Loan Structure That’s Best For Them?

With so much in the news about people losing their homes because they agreed to a crazy loan structure with mysterious rate adjustments, the idea of selecting a lender and loan structure can be scary. Who can you trust?

The bottom line is this, no one knows more about your financial situation than you! You know how much you can afford. It’s the lender’s responsibility to provide you with your total costs before and after closing. At a minimum, ask the following questions before agreeing to anything:

• What will my total cost be at closing?

• What will my payment be each month?

• What is the breakdown of principal, interest, homeowners insurance?

• Do I have to pay PMI?

• What will my payment change to, if I pay a point (1% of loan amount) at closing?

• Does the rate, amortization or structure ever change during the life of this loan?

• Are there any special conditions of this loan?

Don’t be afraid to admit if you don’t understand something. You should be completely comfortable and secure with your choice. When homeowners refinance, they should be putting themselves in a better place and on a better road to attaining their financial goals.

Class dismissed!