Can I refinance or get a mortgage after bankruptcy?

In general, it takes two to four years after a bankruptcy to qualify for another mortgage or refinance (although HAMP loan modifications can usually take place even while you are in bankruptcy). The attached sheet shows current guidelines for different types of mortgage qualification timelines that a reputable local mortgage consultant has put together (mortgage qualification guidelines). And of course, you can always buy a home sooner than that if for instance you find seller-financing, i.e. someone willing to sell on a contract-for-deed, which will usually require a substantial down payment, an interest rate above current market rates, and a balloon payment in a few years so you can refinance once you are ready to qualify again.

I hear from old clients from time to time, and they all thank me for getting them through this phase in their financial journey. Probably the only disappointed comment I ever get, is usually precipitated by some misinformation that former clients have received. People sometimes call a few years after bankruptcy and ask if they can reaffirm their mortgage so their payments appear on their credit report. The answer is no, reaffirmation must be done prior to discharge, and courts in Minnesota won’t allow a case to be reopened to do something that’s already past the deadline. But it’s unnecessary to do that anyway. In fact, almost none of my clients ever reaffirm their mortgage, in large part because the mortgage companies usually don’t send us proposed reaffirmation agreements, but also because it’s usually not in the debtor’s best interest to sign one anyway, at least that’s what most bankruptcy attorneys believe. Unlike many bankruptcy attorneys, I will discuss the pros & cons of reaffirming and let you make the decision (at least if the mortgage company has proposed one, which only happens about 10% of the time). Most of the time the client just continues making payments, and the mortgage company continues to apply those payments to principal, interest and escrow. Where the problem comes in, when we do this so-called “retain & pay” option rather than reaffirming, is that the mortgage company won’t report the payments to the credit bureau, for fear that if they report that you didn’t make the payment, you would accuse them of violating the bankruptcy by damaging your credit. So they have a simple “no reporting of payments” policy after bankruptcy, unless you reaffirm.

The simple workaround for that is to ask your mortgage company for a loan history, which you have the right to do once a year, and then ask the three major credit bureaus to update your payment history by disputing the reporting and attaching the loan history. The mortgage company has 30 days to support the information you are disputing, which they won’t, then your credit should be updated. OK, maybe not as simple as it sounds, as it requires a few letters & will take a few weeks, maybe a month or two, to have it completed, but this basically is what you sometimes need to do to repair your credit in this situation. A good mortgage broker experienced with borrowers with a prior bankruptcy can help guide you through this process – they only get paid if the loan goes through.