We've received a lot of questions over the years regarding how quickly you can refinance a mortgage following bankruptcy.
Here are just a few of the more common questions we have received:
- “How soon can I refinance following a bankruptcy?”
- “I have been out of Chapter 13 bankruptcy for 15 months, can I refinance?”
- “How can I refinance my mortgage in a Chapter 13 bankruptcy?”
- “We filed bankruptcy 2.5 years ago. Can we refinance?”
Since the rules have changed throughout the years regarding how quickly you can refinance, we wanted to be sure we were presenting the most up-to-date information.
Fannie Mae and Freddie Mac
The earliest you can get a new mortgage guaranteed by Fannie Mae or Freddie Mac following a bankruptcy is two years.
According to Freddie Mac’s guidelines, the "waiting period" for reestablishment of credit after a Chapter 13 bankruptcy is 48 months from the dismissal date, but this period is only in effect if the bankruptcy was "caused by financial mismanagement."
If the bankruptcy was not due to your actions (i.e. overspending) but extenuating circumstnaces such as illness, income loss, etc., the period will still only 24 months from the discharge date. Fannie Mae has similar rules in effect of two years from the discharge date or four years from the dismissal date.
For more details on Fannie Mae's policies, you can review a brief fact sheet or can see more explicit details in the Fannie Mae guidelines regarding getting a mortgage after a bankruptcy or other significant credit event.
If you cannot meet Fannie or Freddie guidelines, you may be eligible for an FHA-backed refinance.
FHA
For Chapter 7 filings, the FHA has the following guidelines:
A standard two-year waiting period after the date of the discharge. During this time, you must have reestablished good credit or chosen not to incur new credit obligations.
However, the time period can be as short as one year, if you can show that the Chapter 7 bankruptcy was caused by extenuating circumstances beyond your control and you have exhibited a documented ability to manage your financial affairs in a responsible manner since then.
For Chapter 13 filings, the waiting period can be as short as once year, provided you have been making payments under your payment plan for at least 12 months.
Thelender must determine that during this time that your payment performance has been satisfactory and all required payments have been made on time. However, you will need written permission from the bankruptcy court take out a new mortgage.
Refinancing while in bankruptcy
For starters, the bankruptcy court will need to grant you permission to take on new debt (it's not new debt, per se, as you're replacing an old loan with a new one, but a new lender and fresh paperwork filings mean it is treated as new debt). To be able to proceed, you'll need to file a motion with the court to take on new debt. Although described differently in each court district, you are essentially filing a "motion to incur debt" or "motion to refinance secured debt".
The best place to start is with the attorney that handled your bankruptcy, who should be familiar with the motion paperwork needed in your particular district.