Don Taylor, over at Bankrate.com, recently received a question about Bankruptcy and mortgage refinancing that I think is a poignant reminder of how serious bankruptcy is and how long it can follow you.
The reader writes to Mr. Taylor and pleads his case:
We have about 60 percent equity in our home. We both have credit scores above 700 and both have good incomes. We recently tried to refinance our home mortgage loan at a lower interest rate but, because I filed for bankruptcy three years ago (with the discharge completed two years ago), the lender wasn’t willing to approve a loan with me as a co-borrower. (My spouse was not involved in the bankruptcy.)
The reader goes on to state that they have been in the home for 19 years, presumably with the same loan and bank. Mr. Taylor does remark on being surprised that the bankruptcy is still preventing them from refinancing their mortgage, so maybe they haven’t held this loan for the full 19 years. This point isn’t stated one way or the other.
Regardless, the fact remains that the bank seems to have more stringent standards than simply a good credit score. Many banks have underwriting standards that delve deeper in the borrower’s credit history – especially since the sub-prime mortgage meltdown. Apparently, this bank still weighs the bankruptcy more heavily than the current credit score.
Of course, the bank recommends that the reader’s spouse be the borrower, and that they can then get mortgage insurance to pay off the home in the event of the spouse’s death. This is not surprising as banks often make far more on selling loan insurance than they do on the loan transaction itself.
The bottom line is that a bankruptcy can have far greater and longer lasting impact than you may think, and that rebuilding your credit score alone may not be enough to offset the black mark on your history.
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Great article! Very informative! So is it a safer bet to also go with gold and silver nowadays? I feel right now that it is overvalued. What do you think?