It can seem hard to get a home equity loan after filing for bankruptcy. But it's not impossible for someone who is willing to take the time to look at what different lenders have to offer. Here's what you should know about getting a home equity loan after filing for bankruptcy.
Most of the time, a "home equity loan" is a second mortgage (a lien that is in secondary position to a first mortgage). If a borrower doesn't pay back a loan, the lien holder in first position gets paid first. Other interested parties, like a second mortgage lender, tax collectors, or mechanics' liens, will get paid in the order that they appear on the property's title or deed. Because of this, lenders with second mortgages take on more risk than lenders with first mortgages.
You will almost certainly be looking for a lender who specialises in "sub-prime" or "non-prime" loans. But there are plenty of subprime lenders, and the subprime part of the mortgage business is growing by a lot every year, according to current trends.
The amount of equity you want to take out of your home's value is one of the most important parts of getting a home equity loan, especially after a bankruptcy. The lender will be most interested in your new loan's Combined Loan-to-Value ratio, or "CLTV." From a lender's point of view, the risk goes up as CLTV goes up, and when risk goes up, so does the interest rate.
You should know your credit score if you can, because it will play a big role in how much of your home's equity a lender will let you use. If your credit score is over 620, you may be able to use all of the equity in your home, even if you have filed for bankruptcy.
