Obtaining a Home Equity Loan after Bankruptcy

A home equity loan is the loan that is typically taken out when the borrower needs cash for things such as home repairs, improvements to the house or land, medical bills, or to pay for their child's college education. There must be a sufficient amount of equity in the home as this equity is used as collateral. This means that if the borrower defaults on the mortgage, the lender has rights to the home through a lien.

Once the new lien is placed on the property, the current equity is reduced. Equity is the difference between what is owed on a home and what the amount is that it is worth. These loans generally find themselves being second in line behind a first mortgage. In some rare cases, the home equity loans can be in first position. In extremely rare cases, the home equity loans can be in third position.

Qualifications Needed:

Credit history in good enough standing

Decent loan to value ratio

Combined loan to value ratio that is reasonable

While there are some lenders out there that will only work with people who have excellent credit scores, there are lenders out there that are a little more flexible. Many lenders will consider giving a home equity loan to someone who went through a bankruptcy. Even though back in the day, it was unheard of for anyone to obtain credit after a bankruptcy, many people are finding that it is no longer the case.

Types Of Bankruptcy

There are two main types of bankruptcy, which would be Chapter 7 and Chapter 13. Chapter 7 bankruptcy means that the debt of the person filing was dissolved and the debt is no longer owed. Even though this would look bad in the eyes of some people, some lenders can actually view it as a positive point. As long as there is equity in the home, they can give the loan with good reason to think that the borrower will be able to pay back the funds. After all, all of the other debts have been wiped clean. And, the Chapter 7 cannot be filed again by the borrower for another seven years, which is a safety net for the lender.

The Chapter 13 bankruptcy means that the potential borrower was concerned about his or her debts and took action to make sure that everything was taken care of. The debts were not wiped out and everyone is still getting their money. Because of this, most lenders have no problem looking into the approval of the home equity loan, that is, as long as there is a good amount of equity sitting in the home.

The Good News

Because of lenders truly starting to understand that things in life sometimes get a little out of control, home equity loans can still be approved. Even for those who went through a bankruptcy, there is still hope to get the funds that are needed for the home improvements. Those looking into obtaining loans should begin to look into the various options and companies out there that can help those who went through a bankruptcy.