Bankruptcy has its uses, with crippling debts cleared the principal one. But there is also a price to pay, with many lenders preferring not to lend to those who have taken such action in the previous 2 or 3 years. So, what chance of getting a mortgage loan after bankruptcy?
Actually, the chances are not all that bad, though it does take some time and effort to find a mortgage deal that is affordable. After that, the application needs to be very strong before there is any chance of getting mortgage approval despite bankruptcy.
As negative as such a move is, there are still investment opportunities, loans and mortgages available to those who have been declared bankrupt. What exactly are the mortgage loan options available to those seeking to buy property? Well, there are 5 to consider.
- Bad Credit Mortgages
As the name suggests, these mortgages are specifically designed for those with poor credit ratings. This includes those seeking mortgage loans after bankruptcy. Lenders who specialize in these charge higher interest to make the whole deal feasible.
Also, the repayment term is usually longer to help make the mortgage more affordable, by lowering the size of the monthly repayments. This can help greatly in getting mortgage approval despite bankruptcy, though the regular criteria of a large income, healthy debt-to-income ratio and good job security are also important.
- Bankruptcy Mortgage
Once again, the name gives the nature of this mortgage loan away. This option is specifically for those who have been declared bankrupt but are looking to buy a home and begin rebuilding their credit rating all at the same time.
Under the terms of the loan, all existing debts can be forgiven or restructured, thus allowing the borrower to save the down payment and make mortgage loans after bankruptcy more attainable. The type of bankruptcy (which Chapter) affects the timing of the applications – anything from 1 to 4 years after bankruptcy.
- Federal Housing Administration (FHA)
One of the best options is to approach the FHA for mortgage funding, but there are some compromises to accept in the process. For a start, the choice of property is limited to those that are covered by the FHA scheme, so the property most desired is often excluded.
Securing mortgage approval despite bankruptcy can be tricky, and while backing from the FHA makes it easier, with mortgage loans available just one year after bankruptcy (Chapter 7), it is still necessary to satisfy the criteria set by mortgage providers first.
- Standard Mortgage Loan
It is also possible to get a standard mortgage loan after bankruptcy, but there are some conditions required to do so. For example, a mortgage note must be produced to confirm the status and details of the bankruptcy. The mortgage note highlights the fact that the loan is legitimate.
However, securing mortgage approval despite bankruptcy comes at a price, with a down payment of at least 20% of the purchase price required, as long as any legal fees. This can translate to as much as $30,000, so it can take time to prepare to buy the property.
- Corporate and Industrial Mortgage
This option is provided to those who wish to buy commercial property, rather than a new home. Getting a mortgage loan for these purposes is also affected by bankruptcy but as long as the business plan accompanying the mortgage application is sound, approval is possible.
Repayment terms of the mortgage range from 2 years to 30 years, so the repayments can be kept very low, and very affordable.
By Elizabeth Babcock