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Mortgage Refinancing After Bankruptcy

FHA Mortgage Loan Services offers new opportunities for mortgage refinancing after a bankruptcy or foreclosure. Mortgage refinancing after bankruptcy isnít impossible. However, it might make things a bit more difficult. There are several factors at play when you refinance with a bankruptcy on your record. One of the first is equity. To determine the equity, the lender looks at the loan to value ratio (LTV) of your home. In determining your LTV, lenders look at what the market value is for your home and what you still owe on your mortgage. LTV is the difference between the two. For example, if you have a house that's worth $300,000 and you owe $200,000, your LTV is 66%, which means you have 33% equity in your home. With this type of equity, you could possibly qualify for a refinance, especially if youíre only looking to refinance for rates and terms without cashing out on any of your equity.

If you don't have a lot of equity in your home and are trying to refinance for a better rate, things may get a bit harder because lenders donít feel as secure in recouping their investment if you default. At this point, theyíll scrutinize your credit a lot more to determine if they feel they can trust you to repay the loan. The less they feel they can trust you to repay the loan, the more risk they see in you. This will result is a higher interest rate on the loan, if they're willing to make the loan at all.

Many people struggle with credit after bankruptcy, but it's important to reestablish credit with new accounts. Lenders are interested in seeing how you've handled credit since the bankruptcy, and the only way of that happening is if you've established new credit accounts and made payments on them. Even if youíve re-established credit since your bankruptcy and been diligent in making your payments on time and not over-using your credit cards, you could still face being denied the loan. Lenders have been tightening their credit standards as a result of the subprime meltdown and foreclosure crisis. As a result, youíll typically have to have good credit even for a refinance.

There is a way, however, to get mortgage refinancing after bankruptcy without paying through the nose on interest or being stuck with a costly prepayment penalty: FHA. FHA allows mortgage refinancing after 2 years for a chapter 7 bankruptcy. And, FHA allows home refinancing while in a for a chapter 13 bankruptcy if borrowers have a perfect payment history with bankruptcy. Your credit scores arenít as important to the FHA as your 12-month payment history, particularly on your mortgage.