The Post-Bankruptcy Mortgage – What Are the Options?

Your client comes to you, not with just poor credit, but in a period of post-bankruptcy and your client wants to finance the purchase of a home. What are the options for your client? The first thing to know is that it is possible to secure a mortgage in the post-bankruptcy period. Fox Symes (www.foxsymes.com.au) states that in Australia, the law states that you are not allowed to have more than $3973 in debt unless your creditor knows that your are in a state of un-discharged bankruptcy. This means that you will need to apprise any lender you go to on behalf of your client of the bankruptcy status of your client.

As a mortgage broker, it is important that you have a relationship with non-bank lenders as well as the banks. In the situation of obtaining a poor credit or post-bankruptcy mortgage, this is particularly important. Banks often will not grant financing of any sort to someone in a post-bankruptcy period, especially banks with which your client previously had a debt.

One option for your client is the Lo-Doc loan, which is becoming increasingly popular. This type of loan only requires a simple proof of income that shows the client can make the payments. There is no rifling through old tax receipts and pay stubs necessary. The interest rates tend to be higher than regular home loans but after two years, the client will automatically pay the variable rate at the time of roll over.

There is a relatively new class of lender that has made their presence known on the home financing scene. These are referred to as non-conforming lenders. Mortgage World Australia states that these lenders are often willing to lend up to 90% of a home’s value to a client that has previously gone bankrupt. The pitfall is that the interest rates are generally higher than the standard going rate.

Thankfully, when a client walks through your door asking about the potential for getting a home loan after going bankrupt, you can tell that client there are options. It is not an easy road and it will cost more in the long run due to higher interest rates, but the possibility of financing is a reality. This means that even when your client walks through the door with the worst-case scenario in terms of credit, bankruptcy, you can still help make their dreams of becoming a homeowner come true.