- If you want to apply for a refinance from a traditional mortgage lender, you'll usually have to wait at least four years from the dismissal or discharge date of your Chapter 7 bankruptcy filing to earn approval. That's because this is the time period that both Fannie Mae and Freddie Mac require. A majority of mortgage loans are owned or guaranteed by one of these agencies, and the mortgage lenders originating these loans are required to follow the Fannie and Freddie rules.
- You'll have to rebuild your credit score if you want to refinance after declaring bankruptcy. Mortgage lenders rely heavily on this three-digit number to determine not only if you qualify for a mortgage loan or refinance, but what interest rate they'll charge you. The higher your rate -- above 720 on the popular FICO credit-scoring scale -- the lower interest rate you'll gain. Even if you can qualify for a refinance after declaring bankruptcy, it won't make much sense if the bankruptcy has damaged your credit score enough so that you can't qualify for interest rates that are low enough to save you any money each month.
- To convince a mortgage lender to refinance your loan, you'll need to rebuild your credit score after declaring bankruptcy. To do this, make sure to pay all your monthly bills on time, without fail. You also need to reduce your credit card debt. Finally, close any open credit card accounts that you are not using. Failing to pay bills on time, racking up huge amounts of credit card debt and having too many open credit card accounts can damage your credit score.
- Even if you didn't have to wait four years for a refinance after declaring Chapter 7 bankruptcy, it might take you that long or longer to strengthen your credit scores enough to qualify for the lowest interest rates. Declaring bankruptcy, in addition to falling into housing foreclosure, is the worst thing that you can do to your credit score. Your score can fall by 100 points or more when you file for bankruptcy protection.
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