If you have filed a Chapter 13 or Chapter 7 bankruptcy, the bad news is that this filing will remain on your record for seven to 10 years. However, if you are a homeowner, the good news is that this does not necessarily mean you will be unable to refinance your mortgage for that entire time. It is possible to refinance your mortgage within a year or two after declaring bankruptcy. You can figure out the potential savings with a mortgage payment calculator. The offers will likely get better as you get further and further away from your bankruptcy, but there are other factors which will improve your chances of getting your refinancing loan approved, and getting the best interest rate.
One factor which lenders will look at when you are refinancing your home is the amount of equity you have in your home. If the purpose of your refinance is to get a better interest rate, and you are not attempting to access your home equity with a cash-out refinance, lenders will tend to look upon you as a better risk. They will see the bankruptcy in your past, but they will also be looking at the Loan to Value Ratio of your house.
Loan to Value Ratio
The Loan to Value Ratio (LTV) refers to the difference between the market value of your home and the amount of money you still owe on your mortgage. For example, if your home has a market value of $350,000 and you owe $200,000 on your mortgage, you have $150,000 in equity in your home and your loan to value ratio is high. What this means is that in the event that you default on your loan, the lender is very likely to get their value back on the property, because the property is valued well above what is owed on the mortgage.
Rebuild Your Credit
It is also advisable to do what you can to rebuild your credit before shopping for refinancing loan options, just as you would when applying for a primary mortgage. If you pay down your debt, establish a history of on-time payments, and build your income – all of these measures will help to improve your credit score and help you qualify for the best interest rates.