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Can You Refinance Your Mortgage After Bankruptcy?

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Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”

Personal bankruptcy can help you recover from financial challenges but the process can impact your creditworthiness for several years.

For example, you may wish to refinance your mortgage to improve your repayment options. While it’s not impossible to refinance after bankruptcy, it can be harder to qualify.

Here is an overview of what you can expect to refinance your home loan after bankruptcy:

Can you refinance after bankruptcy?

Yes, you can refinance your mortgage after bankruptcy, but having a bankruptcy on your credit report will make it more difficult to qualify.

It also depends on whether you file for Chapter 7 or Chapter 13 bankruptcy and the type of mortgage loan you’re looking to refinance. You may have to wait several years before you can start the mortgage refinancing process.

If you’re ready to refinance, Credible makes the process easy. You can see personalized prequalified rates from our partner lenders in just a few minutes. We also provide transparency into lender fees that other comparison sites typically don’t.

Find out if refinancing is right for you

  • Actual rates from multiple lenders – In 3 minutes, get actual prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire origination process from rate comparison up to closing, all on Credible.

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Checking rates will not affect your credit

Chapter 7 bankruptcy vs. Chapter 13 bankruptcy

Chapter 7 and Chapter 13 are the two most common types of personal bankruptcy. Both filing options can reduce your total debt balance.

Here are some of the primary differences between Chapter 7 and Chapter 13 and how they can affect your mortgage refinance:

Chapter 7 Chapter 13
You’ll sell (liquidate) your assets to pay off debt You’ll enter a repayment plan to pay off debt
You can receive a discharge within six months of filing You must repay debt within 3 to 5 years before remaining balance is discharged
May result in home foreclosure Stops foreclosure proceedings
Remains on your credit report for 10 years after you file Remains on your credit report for seven years after you file
Minimum waiting period to apply for refinancing after the discharge date:

  • FHA loan: 2 years
  • VA loan: 2 years
  • USDA loan: 3 years
  • Conventional loan: 4 years
  • Jumbo loan: 7 years
Minimum waiting period to apply for refinancing after the discharge date:

  • FHA loan: 1 day
  • VA loan: 1 day
  • Conventional loan: 2 years
  • Jumbo loan: 7 years

The bankruptcy code is complex and can affect your credit history and ability to refinance in other ways, so be sure to speak with a bankruptcy attorney for personal guidance.

Chapter 7 bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves you selling assets upfront to pay back outstanding debts. It’ll remain on your personal credit history for 10 years from the filing date.

As part of Chapter 7, a bankruptcy trustee — the person appointed by the court to oversee your bankruptcy — may sell some of your nonexempt assets to satisfy the payment requirements of the creditors. Nonexempt assets typically include:

  • A second home
  • A newer model car or second car
  • Stocks, bonds, and other investments
  • Jewelry
  • Artwork
  • Expensive clothing
  • Valuable collections, such as a stamp collection or sports memorabilia

If the value of your nonexempt assets isn’t enough to cover your debts, the trustee may foreclose on your home. This is primarily what makes Chapter 7 riskier than Chapter 13.

Waiting period for Chapter 7 bankruptcy

If you get to keep your home, you won’t be able to qualify for a refinance right away. You’ll need to wait a few years after the court discharges your bankruptcy before you can apply for another home loan.

The waiting period to refinance after a Chapter 7 discharge varies by the type of mortgage you have:

  • FHA loan: 2 years
  • VA loan: 2 years
  • USDA loan: 3 years
  • Conventional loan: 4 years
  • Jumbo loan: 7 years

These multi-year waiting periods allow the lender to see if you can manage your remaining debts after the liquidation. It can be more difficult to refinance after filing for Chapter 7 than Chapter 13 since the waiting periods are longer and the event remains on your credit report for three extra years.

Chapter 13 bankruptcy

When you file Chapter 13 bankruptcy, you’ll agree to a repayment plan to discharge your debts, and any remaining balance discharges after completing the repayment plan. A Chapter 13 bankruptcy stays on your credit report for seven years.

One of the main benefits of filing Chapter 13 is that it stops foreclosure proceedings. As long as you can make the mortgage payments during the repayment period, you’ll be able to keep your house.

Waiting period for Chapter 13 bankruptcy

Chapter 13 bankruptcy waiting periods are generally shorter. For instance, after a Chapter 13 discharge, as long as you’ve made 12 qualifying on-time payments, you’ll only need to wait a day to refinance a government-backed loan.

The waiting periods to refinance after a Chapter 13 discharge are:

  • FHA, VA, and USDA loans: 1 day with 12 qualifying on-time payments
  • Conventional loans: 2 years
  • Jumbo loans: 7 years

With conventional loans, if you don’t complete the terms of your repayment plan, the court can dismiss your bankruptcy, and you’ll have to wait four years after that date to refinance your mortgage.

Tip: If you are still waiting to file for bankruptcy, debt consolidation with personal loans might be worth pursuing instead. This can make it easier to refinance your mortgage as a bankruptcy filing won’t appear on your credit report.

Benefits of refinancing your home loan after bankruptcy

There are several benefits to refinancing after bankruptcy:

How to refinance your mortgage after bankruptcy

Follow these steps to refinance your mortgage after bankruptcy and increase your approval odds.

1. Focus on rebuilding your credit

It’s harder to qualify for refinancing with a bankruptcy on your credit report. In addition, the filing will continue to negatively impact your credit score until the item is deleted from your report.

However, there are several ways you can improve your credit score:

  • Make on-time payments for loans and credit cards
  • Don’t apply for new credit accounts
  • Maintain a credit utilization ratio below 30% on revolving accounts
  • Dispute credit report errors

Rebuilding your credit also shows mortgage lenders that you can responsibly manage credit and make payments on-time for your current home loan and any other debts. It’ll also help you qualify for better rates and terms.

Find Out: How to Refinance Your Mortgage With Bad Credit

2. Make sure your waiting period is over

You’ll also need to satisfy the minimum post-bankruptcy waiting period after your discharge date. As discussed above, the waiting period varies by loan type and bankruptcy chapter.

You’ll also want to verify you meet the lender’s credit and financial guidelines before you apply. For example, you must meet the minimum credit score and remain below the maximum debt-to-income ratio (DTI) specified by the lender.

3. Gather and organize your documentation

Refinancing is similar to applying for a first mortgage. You’ll need to supply the standard documents plus certain bankruptcy forms.

Here are some of the documents to have on hand before you apply:

  • Bankruptcy discharge papers
  • Credit explanation letters for derogatory items
  • Recent pay stubs
  • Federal tax returns for the past two years

Your loan officer will likely request additional forms to verify your income and credit.

4. Compare lenders and loan types

It’s important to compare your refinance options from several lenders to find the best rates and terms. You can also score a better rate by giving your credit score a boost, supplying a larger down payment, and opting for a shorter loan term.

5. Apply for a refinance

The final step is applying for a mortgage refinance. This step requires a hard credit check but the new repayment terms can be worth the temporary credit score drop.

You can expect the process to take 30 to 45 days when you have the necessary paperwork.

Alternatives to refinancing after bankruptcy

Refinancing your mortgage after bankruptcy may not be the best financial decision for your circumstances. For example, the refinancing costs may be too high or you might still be within the minimum waiting period. If so, consider these mortgage refinance alternatives:

  • Make extra payments: Consider making extra payments to your high-interest debt and home loan. You can pay off the loan sooner and minimize your interest charges. Instead of paying closing costs, use those funds as an additional payment instead.
  • Mortgage recasting: Many conventional loans qualify for a mortgage recast. This requires an upfront lump-sum payment to reduce your remaining principal balance and lower your monthly bill. Your payment term and interest rate remain the same and no credit check is necessary.
  • Mortgage modification: Your lender may also be receptive to modifying your mortgage loan. It’s possible to extend the repayment period or temporarily reduce the interest rate without refinancing. However, your total loan costs can be higher if you have more monthly payments.

About the author

Josh Patoka

Josh Patoka

Josh Patoka is a personal finance authority and a contributor to Credible. His work has been published on Fox Business and several award-winning personal finance blogs including Well Kept Wallet, Wallet Hacks, and Frugal Rules.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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