Bankruptcy or Foreclosure

Prior Bankruptcy

Depending on how long ago the bankruptcy, the greater your chances for a conforming rate mortgage. In addition, there are some lenders that provide almost conforming rates with bankruptcy discharged or dismissed only one year prior. That is in the case of a chapter 7 bankruptcy. In the case of a chapter 13 bankruptcy, there is usually no need to wait until discharge has seasoned.

Current Bankruptcy

If you are currently in chapter 13 bankruptcy, you may be able to qualify for a home loan. In fact, some lenders can actually provide FHA loans at low interest rates for borrowers in chapter 13. re: HUD Handbook section 4155.1 Rev-4:

“A borrower paying off debts under Chapter 13 of the Bankruptcy Act may also qualify if one year of the pay-out period has elapsed and performance has been satisfactory, and the borrower also receives court approval to enter into the mortgage transaction.”

Prior Foreclosure

Depending on how long ago the foreclosure, the greater your chances for a conforming rate mortgage. However, most mortgage lenders are generally more conservative when a previous foreclosure is involved. As a general rule, if the foreclosure is at least 2 years old, wholesale nonconforming rates can usually come fairly close to conforming rates. If the foreclosure is more recent, offers with higher rates and lower LTVs (Loan To Values) should be expected.

Current Foreclosure

If you are trying to refinance your home while it is currently in foreclosure, the following extenuating circumstances and/or compensating factors may apply:

Lower Debt Ratio
Substantial Down payment towards the refinance
Explanation such as illness, loss of employment, family death
Explanation why your financial situation has improved and will continue to be stable in the future

If you are trying to refinance your home while it is in foreclosure, consider the the following: sometimes you can. If you can’t prove your income, you can usually borrow up to 50% of the value of your house. However, if you are able to prove your income, then you can usually borrow up to 65% of the value of the house.

Some people are able to convey a deed transfer to a close friend or relative while simultaneously refinancing the property in the name of that 3rd party. If that individual is credit worthy, often up to 90% of the value of the house can be borrowed which is usually enough to satisfy or otherwise negotiate settlements with the current mortgage company or other creditors. This will often give the distressed homeowner a chance to re-establish some credit and within a year or so, take the house and a new mortgage back into his or her name; thus relieving the friend or relative of any further obligation.