Several readers have sent in questions asking about the feasibility of obtaining a mortgage when they have gone through bankruptcy.
Qualifying for a home loan after bankruptcy may be difficult, but it is not impossible. According to the loan specialists at Agra Capital, a Towson-based mortgage broker, two of the most important factors lenders consider are:
What is the amount of equity in the home? Lenders will not consider bankruptcy as a "showstopper" if the total loans on the home do not exceed 65 percent of its fair market value.
Has the borrower re-established credit after bankruptcy?
Many lenders will consider "alternate" or nontraditional credit sources, such as utility companies, insurance companies and landlords. When the borrower demonstrates a track record of paying these monthly bills promptly, lenders may judge a former bankruptcy to be creditworthy. It is important for the borrower to keep all canceled checks and receipts to prove these bills have been consistently paid on time.
Another way to re-establish credit is to re-create a history of obtaining and repaying loans. Sometimes a family member or friend will co-sign a loan for a person who has had a bankruptcy. He or she, in turn, will then recycle the proceeds to repay the loan very promptly. Since these loans and repayments usually are reported to credit bureaus, the borrower will show a track record of good credit following bankruptcy.
Lenders also will consider the reason for bankruptcy. Medical bills, business failure or loss of a job due to downsizing all may be valid reasons for bankruptcy, and not necessarily indicative that a person is still a poor credit risk.
A mortgage broker who places loans with a broad range of lenders probably is the best bet to assist in obtaining a home loan after bankruptcy. They often can find creative ways to re-establish credit quickly.
An alternative is to wait until two years after a bankruptcy, when mainstream lenders, using Fannie Mae and Freddie Mac guidelines, will again consider granting a home loan to a borrower who had filed for bankruptcy.
The Sun invites you to send Real estate questions to Mailbag. Questions will be answered by Jonathan A. Azrael of Azrael, Gann and Franz of Towson.
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Pub Date: 2/14/99