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I have lots of equity, but bad credit. Can I refinance?

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Q: I came out of a Chapter 13 bankruptcy in April 2009. My credit scores range from a low of 623 (Equifax) to 659 (Trans Union). Home is worth about $350,000 and I owe about $90,000 against it. I cannot get any lender to look at a refinance or even a home equity loan. Any advice would be greatly appreciated. We have been in our home for 20 years and its a shame that we can't get any equity out of our home for improvements or a refinance. Please help?

A: In theory, you should be eligible for a new mortgage just two years out of a Chapter 13 discharge. However, your low score (and smallish loan amount) means your loan is going to be more difficult to place and even then will produce little income for the lender. Also, your low score will find your final mortgage rate moved higher since your risk profile is greater. You should continue to try to build your credit score and talk to additional lenders about an FHA-backed loan. Finding a second-lien home equity product with a low score will be an even greater challenge.

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