Bankruptcy Equity Home Loan

Recovering from bankruptcy can be a long slow process, but there are steps that you can take that will help you build up a good solid credit foundation. While you have to be aware that you are securing debt on your home, using this as a guarantee will show potential lenders that you are serious about keeping up with your repayments.

When a lender is considering your application for an equity home loan, they will take many different things into consideration. The main one of course will be the amount of equity that is available in your home. Every lender will be different in the cap they set on the amount that can be taken out of your home, so if you find you are being offered less than you anticipated, be sure to check the cap they are using as you may find another lender will have a different level.

For this example we are going to use a cap of 75% of the home value. If your home is valued at £200,000, then the value that the lender will be working on will be £150,000. The amount of your outstanding mortgage will then be deducted from this, so for example you have £100,000 to repay on your mortgage, this will leave you with a potential £50,000 credit available against your home. Whether or not you receive the full amount is again down to the discretion of the lender, and of course you may not need the full amount to begin with anyway.

You may find you can borrow this money over a fixed period of time, such as 10 years – if you choose to do this you have to make sure that you will be able to repay it in time or you will be left facing a large lump sum repayment at the end of the term, which if you cannot repay may well put your home at risk. There is often an option to renew the credit borrowing term at the end of the initial period which means you don’t have to make this large lump sum repayment so be sure to clarify which time of equity home loan you are entering before you sign up to anything.

As with any form of post-bankruptcy credit, you may find that the interest rates on offer to you are not as attractive as those on the high street. However by taking out a post bankruptcy equity home loan you are offering such a good form of security that the rates you will be offered will be much better than for any form of unsecured credit.

After filing for bankruptcy, your personal credit record takes a serious knock that can have consequences for many years to come. Applying for a loan such as a home equity loan may seem impossible, but that is not the case at all. If you have been discharged from bankruptcy more than 12 months previously then the chances of securing financing from a sub prime loans company a quite high. This is provided that you have kept to your repayments schedule over the past year and have payed all repayments on time and not missed any either.

Two years after bankruptcy, your chances of securing a home equity loan are even higher, and as an added bonus your sub prime  interest  rate will not be as high.  If you still have difficulty borrowing it may be worthwhile to obtain a personal credit report in order to ascertain whether there are any irregularities that may be the result of a lender not adding the correct facts regarding your payment. Bear in mind that a bankruptcy will stay on your record for 7 to 10 years, so if you are able to do without a loan for the time being, when you o apply for a loan in the future you can expect a lower interest rate. The main thing to do is keep up to date with all payments in order to not blemish your credit report further.

Bankruptcy does still pose some stigma, mainly to financial institutions, but many people who have gone bankrupt go on to be successful in their lives and borrow again without any problems. If you do need to arrange a home equity loan but have become bankrupt prudence is the key. The best thing about a loan of this type is that it is secured on collateral and so banks are more likely to offer you a loan. The good thing about that is it will work in the favor of your credit report so you will be able to receive credit cards or car loans at better rates provided you do not default on any repayments. You are more likely to secure a home equity loan if you have managed to build up savings, as lenders look favorably on this, but this can be difficult, and having savings might mean you are not in need of the equity loan in the first place.

Also, be sure to check out several potential lenders regarding rates they are offering, but only allow lenders you wish to deal with to check out your credit record, as too many credit checks can have a negative effect on your credit rating.

You can apply for an equity home loan immediately after your bankruptcy has been discharged, but it is not recommended. It’s not advisable as the borrower faces higher than normal interest rates, in fact the more recent the bankruptcy discharge, the higher the interest rate is likely to be and the harder it is to get a loan. It is recommendable to wait for at least 2 years after having your bankruptcy discharged before making a home equity loan application. While securing a loan may be difficult, it isn’t impossible, so be prepared to search hard.

After bankruptcy, sub prime loans are the easiest to secure. Sub prime loan companies will be more willing to lend to people with blemishes on their credit history, but borrowing from them means you face premium repayments. For this reason it is necessary to shop around and not stop at the first positive offer. Financial institutions such as banks and credit unions have different lending criteria: some will not lend to people who have filed for bankruptcy, or have been discharged over 5 years previously. Others, such as sub prime companies have a less strict criteria and will lend  two years or less after bankruptcy discharge. There are however disadvantages to bankruptcy equity home loans; The borrower can expect to have higher repayments due to the higher interest rates. The higher rates are charged because people with bad credit records are considered to have more of a chance of defaulting on their repayments. Applying for a home equity loan with your current mortgage lender may not provide the best deal,  particularly if your credit rating has suffered since you secured your mortgage.Take advantage of all tools at your disposal to find the best potential lenders, including the internet, as this will save you  a lot  of time. Brokers can help with this, but bear in mind they are not usually impartial, but get paid a commission on the out come, so may not encourage you to take the best deal for you.

Sub prime lenders are usually more competitive when lending equity home loans when it comes to discharged bankrupts, as they specialize in this area of the lending market. Once you receive an offer, you should request a detailed breakdown of all payments incurred, including the APR amounts, from each potential lender. Do not stop at the first lender who gives you a positive answer, try to secure 4 or 5 offers and negotiate before entering an agreement.