Home Equity Loans after bankruptcy

Home Equity Loans after Bankruptcy

Home Equity loans are the loans that are availed with the equity available on the property. The property is placed as collateral in this type of loan.

Home Equity loans are classified into two types

• Home Equity loans with fixed rate (or) fixed rate equity loans (or) they are simply called as home equity loans
• Home Equity Line of Credit (HELOC)

From this point, the Home Equity Loans with fixed rate will be written as fixed rate equity loans.

Fixed Rate Equity loans In this type, the lender offers the payment in advance for which the borrower will pay a monthly principal payment with a fixed rate of interest for period of time. Since, the rate of interest is fixed the monthly payment remains the same for the period of loan.

Home Equity Line of Credit In this type, a credit limit (credit limit is the maximum amount of money that can be drawn by the borrower) is set by the lender. The borrower can withdraw money from this account whenever required. The monthly principal payment is calculated based on the amount withdrawn and the current rate of interest. Since, the rate of interest varies the monthly payment is not the same for each month.

Home Equity loans are usually taken:-

• For renovation purposes
• For purchase of another property
• For paying tuition fees in colleges
• For medical expenses
• To pay for credit cards that charge high rate of interest
• To purchase cars
• To investing in real estate

Bankruptcy is the state in which a person or an organization is unable to pay their debts.
Bankruptcy is classified into 4 types:

• Chapter 7
• Chapter 11
• Chapter 12
• Chapter 13

The most widely used bankruptcies are Chapter 7 and Chapter 13.

Chapter 7 bankruptcy or straight bankruptcy is easiest and simplest type of bankruptcy. This is available for all corporations and individuals. In this type of bankruptcy, a trustee (a person licensed by the superintendent of bankruptcy to: (a) administer proposals and bankruptcies (b) Manage assets held by the trust) appointed by the court collects and sells the non-exempt property (the nonexempt property usually include expensive clothing, electronic goods, cars for which the loans have been paid off and a part of the equity in the property) of the debtor to repay the debts.

The main duties of the trustee include

• Sells the property of debtor
• Distribute the amount obtained to the creditors
• Review for fraudulent services

Chapter 12 bankruptcy is for farmers. It is necessary that a part of the income should come from agriculture or farming.

Chapter 13 bankruptcy or “reorganization” is for individuals or sole proprietors. In this type, the debtor is allowed to keep the property. The debtors should suggest a way to pay the loan amount with the available income over a period of three to five years. The duration to repay is based on the state’s median income.

Chapter 11 bankruptcy is similar to chapter 13 with additional improvements like there is no restriction on the amount of debt.

A statistics on the filings of bankruptcy nationwide is given below:

Home Equity with Bankruptcy

Bankruptcy plays a major role while applying for home equity loans as it reflects on the credit history. The mortgage rates are higher for a person who has filed bankruptcy than the normal person.

A person applying for a home equity loan after bankruptcy is charged with additional fees and some times they are expected to pay certain bills out of the home equity loan they obtain.

The home equity loans are probably easily approved for a person who has applied for a “chapter 13” bankruptcy than a person who has applied for “chapter 7” bankruptcy as the property is retained in the former.

While applying for a home equity loan the lenders look for the following criteria

• There should be 2-4 years between the completion of bankruptcy and the application of home equity loan

• New credit accounts should have been created as this proves that the borrower is capable of managing the bills

• There should be no defaults in the payment of the bills. This will help building the credibility that the loan will be paid back

• Constant source of income

Tips to obtain a home equity loan after bankruptcy

• Apply for a loan 2-4 years after the bankruptcy
• Build a good credit record by creating new credit accounts and managing them efficiently
• Pay the bills before deadlines
• Compare the interest rates offered by the vendors in the market
• Check for additional fees
• Compare the loan terms
• Perform a property appraisal
• Maintain important records like paychecks, tax assessment papers etc., that shows there is a constant source of income

List of bad credit mortgagers available in the market

Lending Tree is one of the best mortgager available in the market; the application process is extensive when compared to the other vendors in the market.
www.lendingtree.com

Loan Atlas is one of the top mortgage companies. They offer multiple loan quotes on the various mortgage programs for people with bad credit.
www.loanatlas.com

Lower My Bills is a reputed mortgage company that offers mortgage programs for people with credit issues.
www.lowermybills.com

Source: www.abcloanguide.com