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How To Refinance A Home Loan With A Chapter 13 Bankruptcy

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Refinancing your home loan allows you to save money on payments. If you are in Chapter 13 bankruptcy, it is still possible to refinance a home loan since you don't have to sell assets as in Chapter 7 bankruptcy. However, you have to follow the rules, so you won't get in trouble with the court. Here are tips on getting a refinance home loan under Chapter 13 bankruptcy.

Check with Your Trustee

It is best waiting until after you get discharged from Chapter 13 bankruptcy so you don't need court approval. If you don't want to wait, you will need to be approved by the court for refinancing while in Chapter 13. Discuss it with your bankruptcy trustee to find out if it's possible for you to refinance. Be aware federal law may forbid you to take on new debts under bankruptcy, unless you have permission from the court. 

Review Credit Report and Improve Credit Score

Before you apply, get a copy of your credit report to make certain it accurately reflects debts and payments. Work on rebuilding your credit score with a new line of credit, such as a store credit card. Lenders will look more favorably on you if you open bank accounts, which helps prove you are efficient at saving, and have cash reserves to cover payments. Make timely payments on your Chapter 13 bankruptcy plan for several months.

Find a Lender

Find lenders who are willing to take your application to refinance under Chapter 13. Since you can't expect to get prime mortgage rates under bankruptcy, consider an FHA, or Federal Housing Administration loan to get competitive rates. FHA loans are not as stringent on requirements.

Though FHA loans set restrictions on loan amounts, you still could get a loan to surpass the limit based on your situation. The loan limit is commonly set at $215,00 for a single family home. Before you get discharged, you commonly can only qualify for an adjustable rate mortgage, which could mean interest as high as 20%.

Apply for Refinancing

Applying for refinancing is much like applying for any other loan. except you need to file a Motion to Incur Debt with the court. The Motion to Incur Debt explains why you want the refinancing, and what you plan to do with the funds. Some lenders require you to make a year or two of solid payments on your Chapter 13 bankruptcy payment plan, and have a certain amount of equity in your home, which is usually 30%.

Getting a refinance loan during Chapter 13 bankruptcy can be accomplished by doing your homework. If you get approved, put some of your proceeds from the refinance loan toward your bankruptcy. The sooner you pay off bankruptcy, the sooner you can apply for more traditional home loans with lower interest rates.

To learn more about mortgages, contact a company like McHenry Savings Bank