Question: Can I refinance after bankruptcy?

Answer: Refinancing may be prudent but could be difficult after a bankruptcy. If you're considering bankruptcy, you may want to go to your current lender first and explain the situation. If you have been current on your payments, the lender may be accommodating and refinance your loan, easing your financial situation.

Question: How bad is a previous foreclosure on credit?

Answer: A property foreclosure is one of the most damaging events in a borrower's credit history. In terms of the effect on credit history, a deed in lieu of foreclosure or a short sale is not as adverse an event as is a forced foreclosure.

Question: How do you clear up bad credit?

Answer: There is no fast and easy way to repair damaged credit that took months or years to occur. The law allows negative information to appear on an individual's credit record from 7 to 10 years. Now, many states have specific timeframes if you challenge a credit blemish.

The first step is to check your existing credit record. Anyone can obtain copies of their own credit report free of charge if they have been turned down for credit recently. For a fee, people can request copies of their own credit report from the three major credit reporting agencies: Experian at (800) 311-4769, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. The bureau also should provide instructions on how to read the report and how to dispute any inaccuracies it contains.

If the credit report is correct, take care of any outstanding delinquent obligations first.

Question: How long do bankruptcies and foreclosures stay on a credit report?

Answer: Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.

Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

Question: What can I do if I have bad credit?

Answer: While some people have rebounded from a foreclosure to buy another home within several years, credit problems stemming from a foreclosure can continue much longer for others.

Real estate experts say you should be candid with your lender in discussing these issues. If your bankruptcy resulted from losing your job due to your employer's financial difficulties, a lender probably will look upon your situation more favorably than if your bankruptcy was caused by overextended credit cards.

Question: What options are there after Chapter 11?

Answer: A previous bankruptcy can remain in a credit file for seven to 10 years.

Depending on when the bankruptcy was discharged and what kind of credit a borrower has reestablished since then, it needn't be an obstacle to obtaining loan approval. The longer ago the discharge occurred, the better off a loan applicant will be.

Many lenders also will take into account the circumstances surrounding a bankruptcy. For example, they may look more favorably upon you as a borrower if your bankruptcy was due to financial reverses you suffered due to your employer's own financial difficulties. On the other hand, if you declared bankruptcy because you overextended your personal credit lines and lived beyond your means, a lender probably won't be as forgiving.

If you are in the latter category, you may want to contact a mortgage broker who may qualify them for a "b" or "c," loan, which usually comes at a higher interest rate.

Question: How do I find out what my credit report says?

Answer: For a copy of your own credit report, call one of the three main national credit reporting agencies: Equifax, (800) 685-1111; Experian, (800) 311-4769 or Trans Union, (312) 408-1050.

Question: Do I have to disclose a parent's gift?

Answer: Having generous parents is nothing to hide. An estimated one-third of first-time buyers purchase their home with a loan or a money gift from their parents.

Lenders will ask for a gift letter stating that no repayment of the "gift" is expected. In addition to the letter, a lender can ask for two or three months' worth of statements for the account where the down payment funds are located. If the money was recently placed into that account, the lender may ask where it came from and request verification of that source as well.

Question: What is a gift letter?

Answer: If someone is willing to make a gift of funds in order for you to purchase a home, lenders will ask for a gift letter stating that no repayment of the "gift" is expected. The amount of the gift and the date funds were transferred should be spelled out in the letter, along with the donor's name, address, telephone number and relationship to the borrower.

In addition to the letter, a lender can ask for two or three months' worth of statements for the account where the down payment funds are located. If the money was recently placed into that account, the lender may ask where it came from and request verification of that source as well.

Gifts -- with the proper documentation -- can be from relatives, friends, an employer, church, municipality, or nonprofit organization. Lenders often have stricter restrictions on gifts from friends and relatives other than parents.

Also, if you put less than 20 percent down, some lenders may require that a portion of the down payment is your own cash, not a gift. If you want to use a gift as part of your down payment, check with individual lenders to learn the restrictions of specific private or government-insured mortgage programs.

Question: How do you qualify as a first-time buyer?

Answer: In general, lenders define a first-time home buyer as someone who has not owned any real estate -- whether a personal residence, vacation home or investment property -- during the past three years.

Lenders verify an applicant's status by examining their income tax returns, checking to see that the individual did not take any deductions for mortgage interest or property taxes.

Question: What can I afford?

Answer: Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.

It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and pre-qualify you for a loan.

The price you can afford to pay for a home will depend on six factors:

• Gross income
• The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
• Your outstanding debts
• Your credit history
• The type of mortgage you select
• Current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

Question: What do I do if I get turned down for a loan?

Answer: Increasing numbers of loan applicants are finding ways to buy their own home despite past credit problems, a lack of a credit history or debt-to-income ratios that fall outside of traditionally acceptable ranges.

Ask the lender for a full explanation, and then appeal the decision in writing.

Question: What is the first step when looking for a home loan?

Answer: Most experts recommend that you should get pre-qualified for a loan first. By being pre-qualified, you will know exactly how much house you can afford. Almost all mortgage lenders now pre-qualify and pre-approve customers, and many of them can even do it on the Internet. You also can do your own affordability calculations; most recent consumer books on home buying include steps to doing so, as do various real estate Internet sites.

Question: How do I drop Private Mortgage Insurance (PMI)?

Answer: In some states, the loans have to be at least two years old, and the borrower cannot have made any late payments in the last year in order to drop private mortgage insurance. In addition, the loan-to-value ratio must be less than 75 percent. Some state disclosure laws require lenders to notify borrowers after the close of escrow whether the borrower has the right to cancel private mortgage insurance. Under the new federal law - The Homeowners Protection Act - lenders must drop PMI if the loan closed after July 29, 1999 AND the loan-to-value ratio reaches 78 percent of the home's original value.

Question: Is PMI always required on low-down home loans?

Answer: A growing number of private lenders are loosening up their requirements for low-down-payment loans. But private mortgage insurance, or PMI, usually is required on loans with less than a 20 percent down payment. The Homeowners Protection Act states PMI must be dropped on any loan originated after July 29, 1999 IF it has a 78 percent loan-to-value ratio.

Question: What does PMI cost?

Answer: PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year's mortgage insurance premium is usually paid in advance at the closing.

Question: What is PMI?

Answer: Private mortgage insurance, or PMI, insures the lender against a default. It is required when the borrower is making a cash down payment of less than 20 percent of the purchase price.

PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year's mortgage insurance premium is usually paid in advance at the close of escrow, and there is usually a separate PMI approval process.

Lenders generally turn to a list of companies with whom they regularly work when lining up private mortgage insurance.

In most cases, PMI can be dropped after the loan to value ration drops below 80 percent. The Homeowners Protection Act requires PMI to be dropped when the loan-to-value ratio reaches 78 percent of the home's original value AND the loan closed after July 29, 1999. For other loans, find out from your lender what procedure to follow to have PMI removed when your equity reaches 20 percent.

For homeowners who have improved their properties and believe that their equity has increased as a result of these improvements, refinancing the property at a loan-to-value ratio of 80 percent or less is another possible way of eliminating PMI payments.