Getting a mortgage after bankruptcy

In this article we will explore the possibility of a person being approved for mortgage after a bankruptcy and what he can do to improve his chances of approval. Alongwith it we will also look into positives & negatives of debt consolidation loans and provide you with some important debt consolidation advice.

In recent times because of the wave of foreclosures & credit crunch the economy is going through, purchasing a home after bankruptcy has turned more difficult than before. Lenders nowadays do not approve a mortgage application of an applicant who filed bankruptcy in the last two years. After the two year period mortgage approval will depend on the kind of down payment the person would be able to make & also whether he has verifiable income. But even if the applicant is able to qualify for a mortgage, it will most likely have higher rate of interest & monthly payments.

People who have filed bankruptcy should also be careful about maintaining on time payments on there other debts and history of credit usage. Overuse of credit, payment being delinquent or taking too many debt obligations can lead to disqualification of their mortgage application. Many other points mortgage applicants need to consider are explained at - getting a mortgage after bankruptcy.

Coming to the topic of debt consolidation loans, these are used to consolidate payments on multiple debts together into one single payment. These loans provide the advantage that the person consolidating his debts has to manage one single payment & thus is relieved of the strain of managing payment on several debts. But a possible drawback of these loans is that lenders can interpret it to be a sign that the person is overextended with his finances and is unable to manage them. People looking for more detailed information can go through the following page - pros and cons of debt consolidation loans. Regarding debt consolidation, the advice that can be given is that people should always try to find the right company which would be able to successfully manage their debt consolidation program. Other useful suggestions regarding debt consolidation are available here - debt consolidation advice.

Closing costs

In this article we look at the closing costs that a borrower has to commonly pay and an estimate of how much it can be. These charges & fees always vary, so borrowers should always shop around to get the best combination of closing costs & mortgage loan terms.

Most common closing costs -

1. Application fee: Around $75 - $300 which includes credit report cost for each applicant.
2. Loan origination fee: 1 to 1.5% of the mortgage amount
3. Points: 0 to 3% of the mortgage amount
4. Appraisal fee: About $300 - $700
5. Home inspection fee: Around $175 - $350
6. Prepaid interest: Depends on rate of interest, mortgage amount & number of days that are to be paid for.
7. FHA, VA & RHS fee: FHA fees is about 1.5% of mortgage amount, VA fees varies between 1.25 - 2% of mortgage amount and RHS fees are 1.75% of mortgage amount.
8. Homeowner's Insurance: Around $300 - $1000
9. Flood determination fee: About $15 - $50
10. Survey cost: Around $150 - $400

Mortgage for self employed borrower

In the following section we will look at the income and employment requirements for self employed people for getting a mortgage loan.




The requirements are as follows:

• A borrower is considered self employed if he owns twenty five percent or more in any business.
• To even out fluctuations related to income of self employed borrowers, a minimum of 2 years of average income is required for calculating qualifying income.
• Two or more than two years of self employment is required. In case self employment is for less than two years, it would be acceptable if the person had minimum of two years of previous employment or combination of 1 year of employment & training in any related occupation.
• In the business field the self employed is working in, he should have an overall positive economic outlook.

Home mortgage interest deduction

In this article we look at the conditions which should be met for a person to deduct mortgage interest on his home.

These conditions are -

1. The person should file Form 1040 & on this form in Schedule A, itemize the deductions.
2. He should be legally liable for the mortgage.
3. The mortgage loan needs to be a secured debt which is on a qualified home.

In this context a qualified home means borrower's main or second home and secured debt means a debt in which a person signs an instrument that:

• Makes his ownership in the home security for repayment of that debt.
• Provides that home would satisfy the debt in case of defaults.
• Is recorded under state laws.

Types of mortgage loans

There are basically 3 major types of mortgage loans which we will look into in the following sections.

1. Conforming Loans

These loans adhere to the requirements fixed by the 2 GSEs which buy & sell mortgage loans from lenders, Freddie Mac & Fannie Mae. The GSEs have set caps on the mortgages that they buy for various types of mortgage loans such as single-family home loans and other type of home loans.

2. Non-conforming Loans

Non-conforming loans are also called as Jumbo Loans. These mortgages are for loans that exceed the conforming loan limits and normally have slightly higher rate of interest.

3. Bad Credit Loans

In mortgage sector, borkers refer to a loan applicant's "paper". Here paper means a borrower who has less than perfect credit. "B" papers means a borrower with relatively minor problems and "D" means the applicant has serious problems like bankruptcy filings. The lower your paper, the more you should expect to pay in terms of interest, down payment & points.

What borrower needs to apply for a mortgage

In this article we look at the documents borrower would be required to have at the time of applying for a mortgage -

1. Investment statements for the last 3 months.
2. Pay stubs for last thirty days.
3. Statements for bank accounts for last three months.
4. Documented proof of other incomes; stock dividends, alimony payments etc.
5. Tax returns for last 2 years.
6. Statement to explain the source of down payment for the home.
7. W-2 Forms for the past 2 years.
8. If selling another home, estimate of proceeds from that home.
9. Bankruptcy filing details, if any.
10. Document to show value & ownership of other high value assets.

Type of mortgage to select

At the time of selecting a type of mortgage borrower has to take into consideration certain points which help in selecting the most suitable mortgage.

If the borrower wants to keep the house for a long period of time then opting for a frm will save him money. In addition to it if his income is not going to change appreciably over the next few years then choosing a fixed rate mortgage gives borrower the security that interest payments & mortgage principal remain the same.

On the other hand if borrower knows that his income will increase over time & he wants to get approved for a large mortgage then adjustable rate mortgages should be selected.

While selecting adjustable rate mortgage, borrower needs to be certain that -

• He will be able to afford higher payments if interest rate increases on the ARM.
• He plans to live in the house for less than five to seven years.