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The Impact of Bankruptcy on Mortgage Eligibility

August 14, 2025 by Kay Monigold

Going through bankruptcy can be a challenging and stressful process. However, it s important to understand how bankruptcy may affect your ability to secure a mortgage in the future. Bankruptcy, whether Chapter 7 or Chapter 13, can significantly impact your credit score and financial history, both of which are critical factors when applying for a mortgage. Despite this, it’s possible to obtain a mortgage after bankruptcy, though the path may be a bit more complicated.

Chapter 7 Bankruptcy and Mortgage Eligibility
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the discharge of most unsecured debts. This means that individuals who file for Chapter 7 can have their qualifying debts erased, giving them a fresh financial start. However, filing for Chapter 7 can stay on your credit report for up to 10 years. Mortgage lenders typically look at your credit history to evaluate your ability to repay the loan, and a recent bankruptcy filing can be seen as a red flag.

While it may be difficult to secure a mortgage immediately after a Chapter 7 bankruptcy, it is possible. Most lenders require a waiting period of at least two years after the discharge of the bankruptcy before considering you for a mortgage. During this waiting period, it s crucial to rebuild your credit and demonstrate that you have regained financial stability. Having a stable income, a clean payment history since the bankruptcy, and a reasonable debt-to-income ratio can increase your chances of being approved.

Chapter 13 Bankruptcy and Mortgage Eligibility
Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals to create a repayment plan to pay back creditors over a period of three to five years. Since Chapter 13 bankruptcy does not discharge debts like Chapter 7, it is considered less damaging to your credit. However, it still leaves a mark on your credit report, remaining there for up to seven years.

The good news with Chapter 13 is that you may be eligible for a mortgage sooner than with Chapter 7. In some cases, you may be able to apply for a mortgage during the repayment period of your Chapter 13 bankruptcy, as long as you have made at least 12 months of on-time payments under the repayment plan. Lenders will want to see evidence of your ability to manage your finances while in bankruptcy and the likelihood that you will continue to make timely payments. After the completion of your repayment plan, you may be eligible for a mortgage with a shorter waiting period, usually around two years.

How Bankruptcy Affects Your Credit Score
A bankruptcy filing typically results in a significant drop in your credit score. The severity of the drop depends on your credit profile before the bankruptcy and the type of bankruptcy filed. A lower credit score can make it harder to qualify for a mortgage and can also lead to higher interest rates if you are approved. However, over time, your credit score can improve if you take steps to rebuild it. Making timely payments, keeping credit card balances low, and avoiding further debt can help boost your score.

Rebuilding After Bankruptcy
Regardless of whether you file Chapter 7 or Chapter 13, taking steps to rebuild your credit is crucial. Obtaining a secured credit card, paying off any remaining debts, and ensuring you maintain a steady income can all help increase your mortgage eligibility. Additionally, some government-backed loan programs, such as FHA loans, may be more lenient when it comes to bankruptcy and offer options for individuals who have had a bankruptcy discharge.

While bankruptcy can create challenges for mortgage eligibility, it is not the end of the road. By rebuilding your credit, maintaining financial stability, and working with a mortgage lender who understands your situation, it is possible to secure a mortgage even after bankruptcy. It may take time, but with careful planning, homeownership can still be within reach.

Filed Under: Mortgage Tips Tagged With: Bankruptcy, Home Loans, Mortgage Eligibility

The Benefits of Paying Points on Your Mortgage

August 13, 2025 by Kay Monigold

The Benefits of Paying Points on Your Mortgage
When you take out a mortgage, you may be given the option to pay points in exchange for a lower interest rate. A mortgage point, also known as a discount point, is equal to 1% of the loan amount. For example, if you re financing $200,000, one point would cost $2,000. While paying points means you ll pay more upfront, it can offer long-term savings. Understanding the benefits of paying points on your mortgage can help you decide if it’s the right move for you.

What Are Mortgage Points?
Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. When you pay points, you essentially  buy down  the interest rate, which lowers your monthly payments. Typically, paying one point will reduce the interest rate by 0.25%, though this can vary depending on the lender and the market. While this option increases your upfront costs, it can result in significant savings over the life of the loan, especially if you plan to stay in the home for an extended period.

Lower Monthly Payments
The most obvious benefit of paying points on your mortgage is that it reduces your monthly payments. By lowering your interest rate, your monthly mortgage payment will be smaller, which can make a substantial difference in your monthly budget. For many homeowners, this can provide much-needed relief, particularly if they are dealing with high-interest rates or trying to reduce debt. Over time, the savings from lower payments may offset the initial cost of paying for points, making it a financially sound decision.

Long-Term Savings
In addition to lowering your monthly payment, paying points can result in long-term savings. The interest you save over the life of your loan can be substantial. For example, on a 30-year loan, reducing your interest rate by just 0.25% can save thousands of dollars in interest over the course of the loan. If you re planning to stay in the home for many years, paying points can be a wise investment, as the upfront cost will eventually pay for itself through the lower interest payments.

When Paying Points Makes Sense
Paying points may be a good choice if you have extra cash available at closing and plan to stay in your home for a long period. The longer you stay in the home, the more beneficial paying points can be, as it will take time for the upfront cost to be offset by the savings on your monthly mortgage payments. It s also a good idea if you re currently facing a high interest rate and want to lock in a lower rate without refinancing in the future. However, if you plan to sell or refinance in a few years, the upfront cost may not be worth the savings.

Factors to Consider
Before deciding to pay points, it s important to consider several factors, including your budget, how long you plan to stay in the home, and whether the upfront cost is feasible. You should also weigh how much you ll save with the lower interest rate versus the initial expense of paying the points. If you are unsure whether paying points is the right option, speaking with a mortgage professional can help you analyze the potential benefits based on your personal financial situation.

Filed Under: Mortgage Tips Tagged With: Home Loans, Mortgage Points, Mortgage Tips

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Kay MonigoldKay Monigold
Owner/Mortgage Broker/Residential Mortgage Loan Originator
NMLS#1086176

Steven LoweSteven P Lowe, Sr
Residential Mortgage Loan Originator
NMLS #1085638

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