Mortgage After Bankruptcy Difficult, But Not Impossible
Trying to obtain a mortgage after bankruptcy can be extremely difficult, although not impossible and many companies are more than willing to take on new customers, even with their tainted credit history. Although many housing lenders will want a person to wait a set period of time following the discharge of a bankruptcy before applying for a loan, being granted a mortgage after bankruptcy can become reality through some so-called second chance lenders.
Non-traditional lenders are more willing to offer a mortgage after bankruptcy with a higher interest rate, which greatly increases the amount of the loan over its lifetime. While many of these lenders will grant a loan for a new house within a month or two after the bankruptcy has been discharged, many others prefer the individual begin to rebuild their credit standing before taking on any additional debt.
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 not other debt to interfere with their ability to repay the mortgage.
Mandatory Counseling Also Plays Into Decision
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 predatory lenders feeding off individuals by offering a mortgage after bankruptcy to individuals that most likely 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. Although they will have to sell the home and the person will be obligated for any difference, those offering a mortgage after bankruptcy are most likely to claim them have trouble selling the house and the person is back where they started with a significant debt and no court protection.