Logically, the challenge of recovering from bankruptcy is far from simple. Though our debts are wiped clean, our assets are reduced to practically nil. What chance then of buying a home? Well, the good news is that, despite a ruling of bankruptcy, mortgage loans with bad credit are still very much attainable.
It might seem a contradiction that someone deemed by the law to be incapable of meeting their financial obligations could possibly qualify for such a huge debt as a mortgage. Getting mortgage loan approval after bankruptcy ought to be impossible, but some lenders are willing to take the risk.
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As with every loan, the only thing a lender is really concerned about is that the borrower makes their repayments on time. This means it is possible to get the green light on mortgage loans with bad credit after bankruptcy if all of the necessary criteria are met.
What is Bankruptcy?
Still confused? Well, a key to understanding why all of this is possible is understanding what bankruptcy actually is. We can be forgiven for thinking that after bankruptcy, mortgage loans are too much for an applicant to handle. But not everyone who has been ruled bankrupt has no assets at all.
A good bankruptcy lawyer is able to negotiate a deal that results in a fraction of the debt being repaid in return for the debts being written off. So, if a person is hopelessly burdened by a $250,000 debt to a group of creditors, an agreed payment of $125,000 may see the total debt wiped clean. Once this debt is cleared, the individual is entitled to start again - so getting mortgage loan approval after bankruptcy becomes possible.
Bankruptcy can actually be a positive strategic move for someone who faces huge debts they know they will never be able to pay. There are costly consequences but when applying for home loans with bad credit after bankruptcy, these are generally acceptable.
Terms to Watch Out For
The first, and most obvious consequence is the high interest rate that is charged on post bankruptcy mortgage loans. Depending on the lender, they can result in $200 or $300 more per monthly repayment than under normal circumstances. This step is taken by lenders to compensate for the increased level of risk involved.
Secondly, the loan limit can be lower than would be preferable, thereby restricting the properties that a borrower can actually buy. This can actually be a blessing in disguise because when getting mortgage loan approval after bankruptcy, it is useful to keep the possible debt down. This way the chances of spoiling the fresh start are small.
Online lenders, however, offer lower interest rates and more flexible repayment schedules, and are experts at providing such things as mortgage loans with bad credit after bankruptcy. Traditional lenders, by comparison, are more expensive, less flexible and apply strict penalties.
Why Get a Mortgage Loan?
So why bother getting a mortgage loan after bankruptcy if interest rates are guaranteed to be high? Well, the fact is that by getting mortgage loan approval after bankruptcy, the borrower is given a chance to rebuild his or her financial status.
This can also be done by taking out a series of small personal loans and paying them back, thus improving the credit score. It is a good idea to do this before seeking a home loan with bad credit after bankruptcy to improve your chances of getting approval. But, remember too that buying a home means attaining a valuable asset, one that can be sold later to help fund buying your ideal home.
So, while a mortgage loan after bankruptcy is a dip in the deep end, the advantages are there to be enjoyed.
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