Mortgage Rates And Your Bankruptcy

Finance & Money Blog

If you are filing for bankruptcy, you might wonder how it might affect your mortgage rates if you own a home or if you are considering purchasing a home. In some cases, bankruptcy can affect your mortgage rate for better or for worse. Here is what you need to know.

When You Already Have a Home

If you already have a home, you do not have to worry about your mortgage rates going up. The mortgage company is not able to raise your mortgage rates based on the fact that you have filed for bankruptcy. You may try to negotiate your mortgage rates but this might be more difficult after a bankruptcy. 

When You Are Looking for a Home

If you already own a home, you may be at risk of losing it under Chapter 7 bankruptcy. However, if it turns out that your home is exempt, you will be able to continue making payments as if nothing happened. You are not able to discharge the debt that you owe to the mortgage lender so you must continue making payments to avoid losing your home.

When You Purchase a Home

After filing for bankruptcy, you may find it easier to purchase a home by getting a mortgage. This is because you will have a lower debt-to-income ratio because your debt will have been discharged under Chapter 7. A high debt-to-income ratio will prevent you from qualifying for the best mortgage rates. If you have filed for Chapter 13, continue to make payments and avoid incurring more debt.

You may also be able to improve your credit score well enough after bankruptcy so that you will be entitled to a competitive mortgage rate. Your credit score is one of the most important factors in determining what you will qualify for when obtaining a mortgage.

Home Loan Programs

What determines your mortgage rate is the home loan program that you qualify for. Government-backed programs such as USDA home loans, FHA loans, and VA loans will be easier to qualify for if you have filed for bankruptcy. 

If you are not able to qualify for a government-backed mortgage rate, you may be able to qualify for a portfolio loan option instead. These have higher rates but they are available to those who do not qualify for government-backed loans. However, regardless of your financial situation, there might be a suitable mortgage rate that you may be able to qualify for.


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