Bankruptcy Fix Up

New Mortgage After Bankruptcy – Is It Possible ?

October 30th, 2007 Subscribe To Our Feed

It is often assumed that after bankruptcy getting any sort of credit is difficult. This applies to property finance in particular because of the large sums of money generally involved in purchasing property. Thus somebody applying for a new mortgage after bankruptcy may find it difficult to satisfy much of the lending criteria. The same thing applies for a refinancing mortgage after bankruptcy or even for changing the conditions of any outstanding mortgage. It is not impossible however and many companies are more than willing to take on new customers, even with a checkered credit history. Although many mortgage lenders require a person to wait a set period of time following the discharge of a bankruptcy before applying for a loan, being granted a new mortgage after bankruptcy can become reality through what is known as second chance lenders.

Non-traditional lenders are more willing to offer a new mortgage after bankruptcy however they charge a premium for this service through higher interest payment rates and higher application and arrangement fees. They are essentially offsetting the risk they see in giving somebody with a poor credit history a large sum of money. This will obviously make your interest payments more expensive and you need to make sure you will be in a position to meet these obligations.

There are a few reasons why a lender would be willing to grant a mortgage after bankruptcy, including the fact the person cannot file for bankruptcy for another seven years and if they are going to default on the mortgage, there is a good chance it will be within the first few years. The individual will also have little or no other debt to interfere with their ability to repay the mortgage.

The reasons for claiming bankruptcy vary by individual and can also help a lender decide if a person can be trusted with a mortgage after bankruptcy. Additionally, those filing for bankruptcy after 2005 have had to go through two separate financial counseling sessions. The first session, prior to filing, is to determine if the person qualifies for bankruptcy under Chapter 7 or Chapter 13, and after the court hearing and before the discharge they must also undergo financial management counseling to learn to be more responsible.

There are, however some unethical lenders that will take advantage of individuals by offering a new mortgage after bankruptcy with simplified lending criteria, knowing that they will default on their loans, and once they do, will be able to obtain not only a judgment against the person and the ability to garnish their wages for repayment, but also can reclaim ownership of the home. Regardless of the temptation to get money for a new mortgage you must check all the conditions of the loan and understand your responsibilities. Be honest in your assessment of your ability to repay the loan not just over the short term but many years into the future.