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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
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Bankrate.com |
Refinancing after a bankruptcy
Dear Dr. Don,
I declared bankruptcy in 1996. It was paid off in 1998. How will
this affect my being able to refinance my home at a lower rate?
I am at 9 percent now.
Thanks,
Margaret Mortgage
Dear Margaret,
A Chapter 13 bankruptcy stays on your credit report for seven years,
while a Chapter 7 bankruptcy stays on your credit report for 10
years.
That doesn't mean you can't refinance, just that it's
more difficult and you won't be eligible for the best rates. Typically,
lenders will consider loaning you money again when it has been at
least two years since you filed for bankruptcy and you've stayed
current on your bills over that period.
A person in a Chapter 13 bankruptcy who is meeting
the terms of repayment will have an easier time re-establishing
credit than someone who discharged debts in a Chapter 7 bankruptcy.
Your credit history since the bankruptcy will have a lot to do with
your ability to refinance your home at a lower rate.
Forewarned is forearmed. Get a copy of your credit
report and review it for accuracy. Dispute any erroneous items and
get it in the best shape you can, given your credit history.
While you're at it, get a copy of your credit score,
too. All three of the credit
bureaus can supply you with a copy of your credit score. I think
the best choice is to get your FICO score in conjunction with your
Equifax
credit report. With this information you'll have a better sense
about how a lender will view your loan application.
Your history makes you more of a "story"
credit. What I mean by that is that you'll have more luck with a
lender that pays attention to your whole loan application file and
doesn't just look at the credit report and the credit score.
You want a lender that will do more than a cursory
review of the numbers and will consider what your goals are in this
transaction. Mortgage brokers can often do more for people in your
situation than you can do for yourself by shopping financial institutions
on your own.
Read Michael Larson's Bankrate feature, Mortgage
broker "to-do" list, for practical advice when using
a mortgage broker.
-- Posted: Oct. 31, 2001
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