How long after my bankruptcy is discharged do I have to wait to get a mortgage? - Typically, the majority of lenders refuse to consider an application from someone who has had a bankruptcy within the preivous two years. However, more and more lenders are beginning to consider applications from people who have had a bankruptcy with a very short period of time. There are even a few companies that claim to give mortgages to people the very next day after a bankruptcy is discharged.
How long after a bankruptcy will my ability to get a mortgage be negatively affected? - If you’re hoping to apply for a mortgage and be considered no different than any other applicant who has never declared bankruptcy, you’re going to have to wait quite awhile. The bulk of lenders will always catagorize your application as high risk when they see bankruptcy in your credit history. However, the majority of lenders will also not penalize you or charge you a higher rate if your bankruptcy was at least 5 or 6 years ago, assuming of course that everything since then has been acceptable.
Are the number of lenders available to me limited because I declared bankruptcy? - Yes. Since the number of mortgage applications from people with bankruptcies is significantly less than the number from people without them, there are obviously more resources available for the average applicant. However, more and more companies are rolling out programs to assist those individuals who have had problems in the past, thereby increasing the number of potential resources.
Are the quality of the lenders available to me the same as the lenders who work with everyone else? - Yes. The same quality of both company and product is available to those people who have declared bankruptcy in their past. Therefore, the same challenges exist for potential mortgage applicants, regardless of their financial history, when it comes to choosing the best lender. There are good and bad mortgage companies that cater to people in every walk of life, so you’ll still have to weed out the unacceptable companies just like anyone else. Plus, a large number of the gigantic commercial mortgage organizations have opened new divisions that specifically work with people in your situation. This is even more reassuring because you’re working with the exact same companies that service other people in all kinds of situations.
Are there more requirements when applying for a mortgage? - Yes. Since any mortgage lender will consider a bankruptcy in your past a significant event, and their main concern is the potential that you will default on the loan, you can absolutely expect them to require a lot of information about your previous situation. They’ll likely ask for your detailed explanation about what led up to the bankruptcy - and they’ll probably ask you to explain it more than a few times, and perhaps even submit your explanation in writing. In addition, they’ll want copies of the bankruptcy paperwork and petition, a breakdown of the debts you had prior to filing, and all supporting documentation that accompanied the discharge declaration. The lender will also want to look deeper into your current situation, since the time of discharge, to ascertain whether or not you’ve learned from your past and are now handling your finances more appropriately.
How much detail regarding my bankruptcy will be requested by the mortgage company? - A lot. In general, any mortgage company will request as much information as you have relating to your bankruptcy. This is not out of the ordinary and should not be taken as a personal attack. It’s important to see things from the lender’s point of view. You’ve asked them to consider letting you borrow a significant amount of money, and their only concern is whether or not you will pay it back. Since they don’t know you personally, the only gauge they have is your past payment performance with other lenders. The more information they have about your bankruptcy, the better they’ll be able to understand your sitaution as it was at that time. Since everyone’s situation is unique, they’re hoping to determine whether or not you declared bankruptcy for reasons that they’d consider acceptable or out of your control.
Can I get a mortgage without providing any information about my bankruptcy? - Probably not. The answer to this question will depend on how long ago your bankruptcy was discharged, and on the lender’s policy regarding information about bankruptcies. If the bankruptcy was discharged within the past few years, you can expect that every legitimate lender will request as many details as you can give them, including all documentation from the court proceedings. If you proceed with a lender whose specialty is bad credit and/or bankruptcies, they may have different internal rules and could possibly require less, or more, than other lenders. If your bankruptcy was more than 10 years ago, however, there is a chance that your general lending institution will not ask for very much information, provided of course that your credit history since that discharge has been impeccable. Any potential borrower should be prepared to fully disclose any information relating to financial history, and should not be surprised when lenders feel it is necessary to obtain further information.
Does the specific type of bankruptcy that I declared make a difference in getting a mortgage? - Probably not. Those companies with specialized focus and experience will most likely have more detailed actuarial computations that may or may not reflect a statistical difference between borrowers who filed one type of bankruptcy versus another. However, the major generalized lenders will just group your application together with the others that have been marked as “high risk”. Simply put, it is not likely that the type of bankruptcy you filed will have a significant impact, however there is a chance that some lenders may take it into consideration.
Does the reason for my bankruptcy make a difference in getting a mortgage? - Not really. The fact that your financial situation became overwhelming to the point of making bankruptcy a necessity is what will make lenders nervous. The chance that they’ll consider your explanations is small, and that is simply because there is no way to verify the accuracy of your claims.
Will the features/provisions of the mortgage be different than for someone who never declared bankruptcy? - Probably. Of course, this all depends on countless factors that will be different for each person and each company. In general, you can expect a higher interest rate, or you may be required to pay more points, or undergo more interviews and answer more questions. Some companies even require people with tarnished credit histories to arrange for the automatic monthly withdrawal from their bank account. Basically, you can expect that the mortgage company will make you jump through more hoops before they will approve your application.
If I do get a mortgage, will I still be able to refinance or get a home equity loan later? - Yes. Once you successfully obtain a mortgage, there is no stipulation that you keep that mortgage for the entire duration. As the borrower, you are not obligated to keep a mortgage at all. Actually, your chances of getting a better contract will only increase after you’ve gone through the pain of getting the first one. Provided you make your monthly payments on time and in full, the first mortgage comapny will report this to all of the major credit bureaus, thereby increasing your credit score and making any future mortgage applications easier to get. Future mortgage lenders will be slightly more open to approving your loan application because they will be able to see your steady and consistent mortgage payments, and they will take into consideration the fact that another lender was willing to approve your request for financing.
If my loan gets transferred to another company, will that new company also receive the information about my bankruptcy? - Yes. Any time that a mortgage loan is bought or transferred to another servicing company, your entire file is transferred along with it. This means that any information about you or your situation that a mortgage lender has will be passed to the new company in its entirety. This is because any lender who may be considering taking over a loan, or loans, from another lender will undoubtedly want to evaluate the risk associated with those contracts before agreeing to take over their servicing. Actually, one of the documents you will undoubtedly sign at the closing table will be one that grants the mortgage company the right to sell, assign, or transfer the servicing of your contract to any other lending institution they deem fit with or without notice to you beforehand.
If my loan gets transferred to another company, does the new lender have the right to request additional information from me, or to make changes to my loan? - This is a two-part question, therefore requires a two-part answer. The answer to the first part of this question is yes - the new lender does indeed reserve the right to request additional information once they have taken over the servicing of your loan. The chances of this are small because the lender who assumes your contract will have your complete file on hand before agreeing to take over your loan, therefore they can review all of the underwriting information at their leisure. However, if by some chance they feel that there are questions or concerns that the original company failed to address during the initial underwriting stages of your application, they do reserve the right to request clarifying documentation or explanation. To answer the second part of this question, whether or not the new servicing company is permitted to alter the mortgage contract, the answer is most definitely no. Your loan is a legal and binding contract between you and the original lender. You sign multiple documents to this effect, and the lender provides you with multiple repetitory disclosures to the same effect. One of these disclosures explains that the lender has the right to sell their interest in your loan to another provider, however the specifics of your contract are static and cannot be changed without your express written permission. This fact is also one of the things that any new potential loan servicer must review prior to their agreement to overtake servicing of another company’s loans. The new lender must be comfortable with, and able to, abide by the pre-existing loan agreement’s details.
Will my bankruptcy be disclosed to the real estate agents involved in this transaction? - No. Legally, this information is necessary only for the mortgage broker and/or mortgage lender. The details of your financial sitaution and your past difficulties have no bearing whatsoever on the ability of either real estate agent to adequately perform his job duties. Actually, there is usually very little communication between the real estate agents and the mortgage broker/lender. Their jobs are only very slightly connected, and each of them is also bound by privacy laws and confidentiality agreements. Even if your real estate agent was the one who connected you to the mortgage broker/lender, the broker is bound by law to keep your information private. In the event that your personal and sensitive financial details were disclosed to the real estate agent, or anyone else for that matter, then you are in a position to demand legal recourse for the broker’s mishandling of confidential information. All brokers and lenders are aware of this potential liability, and it is unlikely that they would jeopardize their licenses.
Will my bankruptcy be disclosed to the seller? - No. Legally, it should not be disclosed to anyone other than the broker and/or the mortgage lender. There is no reason for the seller of the property to know the sordid details of your financial past. There is no benefit or danger to the seller from knowing these details. Since you are not the one actually paying the seller the money for the house, then it should make no difference to the seller where or how you obtain financing. Your contract with the mortgage company is no one’s business but your own. Now, this is not to say that no seller has ever discovered a borrower’s finanicial history details, but this is something that should be made perfectly clear from the beginning. Your bankruptcy should not even be discussed at the closing table because the only time it is an issue is during the mortgage application phase, which is concluded prior to settlement. Once you’ve received approval, your bankruptcy should have no bearing on anything else.