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The Impact of Bankruptcy on Mortgage Eligibility

August 14, 2025 by Jeff Cost

Going through bankruptcy can be a challenging and stressful process. However, it s important to understand how bankruptcy may affect your ability to secure a mortgage in the future. Bankruptcy, whether Chapter 7 or Chapter 13, can significantly impact your credit score and financial history, both of which are critical factors when applying for a mortgage. Despite this, it’s possible to obtain a mortgage after bankruptcy, though the path may be a bit more complicated.

Chapter 7 Bankruptcy and Mortgage Eligibility
Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the discharge of most unsecured debts. This means that individuals who file for Chapter 7 can have their qualifying debts erased, giving them a fresh financial start. However, filing for Chapter 7 can stay on your credit report for up to 10 years. Mortgage lenders typically look at your credit history to evaluate your ability to repay the loan, and a recent bankruptcy filing can be seen as a red flag.

While it may be difficult to secure a mortgage immediately after a Chapter 7 bankruptcy, it is possible. Most lenders require a waiting period of at least two years after the discharge of the bankruptcy before considering you for a mortgage. During this waiting period, it s crucial to rebuild your credit and demonstrate that you have regained financial stability. Having a stable income, a clean payment history since the bankruptcy, and a reasonable debt-to-income ratio can increase your chances of being approved.

Chapter 13 Bankruptcy and Mortgage Eligibility
Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows individuals to create a repayment plan to pay back creditors over a period of three to five years. Since Chapter 13 bankruptcy does not discharge debts like Chapter 7, it is considered less damaging to your credit. However, it still leaves a mark on your credit report, remaining there for up to seven years.

The good news with Chapter 13 is that you may be eligible for a mortgage sooner than with Chapter 7. In some cases, you may be able to apply for a mortgage during the repayment period of your Chapter 13 bankruptcy, as long as you have made at least 12 months of on-time payments under the repayment plan. Lenders will want to see evidence of your ability to manage your finances while in bankruptcy and the likelihood that you will continue to make timely payments. After the completion of your repayment plan, you may be eligible for a mortgage with a shorter waiting period, usually around two years.

How Bankruptcy Affects Your Credit Score
A bankruptcy filing typically results in a significant drop in your credit score. The severity of the drop depends on your credit profile before the bankruptcy and the type of bankruptcy filed. A lower credit score can make it harder to qualify for a mortgage and can also lead to higher interest rates if you are approved. However, over time, your credit score can improve if you take steps to rebuild it. Making timely payments, keeping credit card balances low, and avoiding further debt can help boost your score.

Rebuilding After Bankruptcy
Regardless of whether you file Chapter 7 or Chapter 13, taking steps to rebuild your credit is crucial. Obtaining a secured credit card, paying off any remaining debts, and ensuring you maintain a steady income can all help increase your mortgage eligibility. Additionally, some government-backed loan programs, such as FHA loans, may be more lenient when it comes to bankruptcy and offer options for individuals who have had a bankruptcy discharge.

While bankruptcy can create challenges for mortgage eligibility, it is not the end of the road. By rebuilding your credit, maintaining financial stability, and working with a mortgage lender who understands your situation, it is possible to secure a mortgage even after bankruptcy. It may take time, but with careful planning, homeownership can still be within reach.

Filed Under: Mortgage Tips Tagged With: Bankruptcy, Home Loans, Mortgage Eligibility

The Benefits of Paying Points on Your Mortgage

August 13, 2025 by Jeff Cost

The Benefits of Paying Points on Your Mortgage
When you take out a mortgage, you may be given the option to pay points in exchange for a lower interest rate. A mortgage point, also known as a discount point, is equal to 1% of the loan amount. For example, if you re financing $200,000, one point would cost $2,000. While paying points means you ll pay more upfront, it can offer long-term savings. Understanding the benefits of paying points on your mortgage can help you decide if it’s the right move for you.

What Are Mortgage Points?
Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. When you pay points, you essentially  buy down  the interest rate, which lowers your monthly payments. Typically, paying one point will reduce the interest rate by 0.25%, though this can vary depending on the lender and the market. While this option increases your upfront costs, it can result in significant savings over the life of the loan, especially if you plan to stay in the home for an extended period.

Lower Monthly Payments
The most obvious benefit of paying points on your mortgage is that it reduces your monthly payments. By lowering your interest rate, your monthly mortgage payment will be smaller, which can make a substantial difference in your monthly budget. For many homeowners, this can provide much-needed relief, particularly if they are dealing with high-interest rates or trying to reduce debt. Over time, the savings from lower payments may offset the initial cost of paying for points, making it a financially sound decision.

Long-Term Savings
In addition to lowering your monthly payment, paying points can result in long-term savings. The interest you save over the life of your loan can be substantial. For example, on a 30-year loan, reducing your interest rate by just 0.25% can save thousands of dollars in interest over the course of the loan. If you re planning to stay in the home for many years, paying points can be a wise investment, as the upfront cost will eventually pay for itself through the lower interest payments.

When Paying Points Makes Sense
Paying points may be a good choice if you have extra cash available at closing and plan to stay in your home for a long period. The longer you stay in the home, the more beneficial paying points can be, as it will take time for the upfront cost to be offset by the savings on your monthly mortgage payments. It s also a good idea if you re currently facing a high interest rate and want to lock in a lower rate without refinancing in the future. However, if you plan to sell or refinance in a few years, the upfront cost may not be worth the savings.

Factors to Consider
Before deciding to pay points, it s important to consider several factors, including your budget, how long you plan to stay in the home, and whether the upfront cost is feasible. You should also weigh how much you ll save with the lower interest rate versus the initial expense of paying the points. If you are unsure whether paying points is the right option, speaking with a mortgage professional can help you analyze the potential benefits based on your personal financial situation.

Filed Under: Mortgage Tips Tagged With: Home Loans, Mortgage Points, Mortgage Tips

Cash-Out Refinance vs. Rate-and-Term Refinance: Which One Is Right for You?

August 12, 2025 by Jeff Cost

When considering refinancing your mortgage, two main options often come to the forefront: Cash-Out Refinance and Rate-and-Term Refinance. Both allow you to change the terms of your mortgage, but they serve different purposes and have distinct advantages. Understanding the differences between these two refinancing options is crucial to making an informed decision that best aligns with your financial goals.

What Is a Cash-Out Refinance?
A Cash-Out Refinance allows you to replace your existing mortgage with a new one for more than you currently owe. You receive the difference in cash, which you can use for various purposes, such as paying off high-interest debt, funding home improvements, or covering significant expenses. This type of refinance is ideal if you have built up equity in your home and need extra cash for a specific financial need. It can provide an opportunity to consolidate debt or make investments, but it does come with risks. By increasing your loan balance, you may extend your mortgage term or raise your monthly payment, so it’s important to assess whether the cash received outweighs these potential costs.

What Is a Rate-and-Term Refinance?
A Rate-and-Term Refinance, on the other hand, does not provide any additional cash but focuses on modifying the terms of your existing mortgage. This could involve adjusting the interest rate, changing the length of your loan, or switching between a fixed-rate and an adjustable-rate mortgage (ARM). The primary goal of this refinance is to reduce your monthly payments or save on interest over the life of the loan. If interest rates have dropped since you took out your original mortgage, a Rate-and-Term Refinance can be an excellent way to secure a lower rate and reduce your financial burden without taking on additional debt.

Key Differences Between the Two Options
The fundamental difference between Cash-Out and Rate-and-Term Refinances lies in the purpose and outcome. With a Cash-Out Refinance, you’re borrowing more money, whereas a Rate-and-Term Refinance focuses on adjusting your current loan without increasing the amount owed. If you re looking for quick access to funds and have the financial ability to manage a larger loan, a Cash-Out Refinance may be the right choice. However, if you want to lower your monthly mortgage payment or reduce the interest you pay without taking on extra debt, a Rate-and-Term Refinance might be the better option.

When to Choose Each Option
Choosing the right refinance option depends on your financial situation and goals. A Cash-Out Refinance could be beneficial if you need to cover major expenses or want to invest in home improvements that could increase the value of your property. Conversely, a Rate-and-Term Refinance is ideal if you’re primarily focused on saving money in the long term and reducing your overall debt without taking on extra liabilities. It s essential to weigh the costs, benefits, and potential risks of each option before making your decision.

In either case, consulting with a mortgage professional can help guide you through the process and ensure you choose the best refinancing option based on your unique needs.

Filed Under: Mortgage Tips Tagged With: Home Loans, Mortgage Refinance, Refinancing Options

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Jeff Cost
Sr. Loan Officer

Cincinnati, OH Mortgage Lender
NMLS# 21688


jeffrey.cost@ccm.com

Call (513) 403-6260
Fax (941) 567-5222

Cross Country Mortgage

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  • The Impact of Bankruptcy on Mortgage Eligibility
  • The Benefits of Paying Points on Your Mortgage
  • Cash-Out Refinance vs. Rate-and-Term Refinance: Which One Is Right for You?
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