Refinancing a mortgage is something a homeowner chooses to do from time to time. And occasionally, those homeowners have a bankruptcy in their credit history. But that doesn't make refinancing impossible, though it might make refinancing for the all important interest rate reduction a bit more difficult.
There are several factors at play when you refinance with a bankruptcy on your record. One of the first is equity. If you're refinancing to get a better interest rate and have a substantial amount of equity in your home that you're not attempting to touch (meaning you are refinancing for the current loan amount and not attempting to cash in for more than that), you'll have the best shot of getting a refinance with a great rate.
Lenders will see the bankruptcy in the past, but will also look at the loan to value ratio of your home. They'll look at what the market value is for your home, what you still owe on the mortgage and the difference is your loan to value ratio.
For example - if your home has a market value of 300,000 dollars and you owe 200,000 dollars on the mortgage, your equity is 100,000 dollars. If you're only looking to refinance what you owe, the bank has a pretty safe investment and will likely give you a great interest rate. If you default on the loan, the likelihood of them getting their 200,000 back is pretty good since your home is valued well above what you would owe on the mortgage.
If you don't have a lot of equity in your home and are trying to refinance for a better rate, things may get a bit harder. The less secure the bank feels in recouping the money you owe them should you default on your loan, the more they'll be looking at your credit history to see how "trustworthy" you are. The more risk they see in you, the higher they'll make the interest rate on the loan, if they're willing to make the loan at all.
Check with several lenders and get some offers. If it turns out they can't beat your current interest rate, then the obvious choice is to work on building your credit back up and keep the same loan until you can get one with a better rate.
If you're refinancing to get at the equity in your house and are less concerned about lowering your interest rate you'll be well served to do some comparison shopping as well. Even with a bankruptcy on your record, you'll likely find lenders willing to refinance for you - but you may not like their interest rates. Decide if your desire to get the equity in your home is worth paying a premium for it.
While a bankruptcy remains on your record for seven to ten years, that doesn't mean that you'll be an "un-desirable" to mortgage companies that entire time. Usually people find they can get decent refinancing offers within 1-2 years of bankruptcy, with the offers getting better as the bankruptcy gets further into your records and your more recent credit history has time to build a glow.
Getting refinanced requires a lot of the same traits and steps that getting a brand new mortgage does, so you may want to check out the great tips for rebuilding your credit history specifically to show mortgage lenders you're worthy of a loan here.
Patience is a virtue - especially when looking to refinance your home after you've claimed bankruptcy. Take your time shopping potential lenders, get several quotes and work on building your credit back up throughout the process.