Getting a new mortgage after bankruptcy may seem a distant dream for many Canadians who find themselves bogged down with a bad credit rating for the wrong reason. This can happen as a result of losing a job, illness or simply not understanding consumer credit. Sometimes bad financial situations happen to good people and bankruptcy seems to be the only way out.
But it’s not all doom and gloom. There are a number of strategies for putting your credit back on track! Following these tips will help you get approved for a mortgage, even after bankruptcy.
Going from one financial institution to the next, only to be declined again and again can be very frustrating. This is where an experienced mortgage agent on your side can make all the difference.
Please watch this 4-min video for some tips!
Here are a few factors to consider if you’d like to get a mortgage after bankruptcy
- Locating the right lender. Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report. However so-called non-conforming lenders may consider doing so, provided the borrower can demonstrate that he or she has the income to support the payments, has saved a down payment, and has re-established credit.
- Length of time since bankruptcy discharge. Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage-typically two years along with proof of re-established credit. Some lenders may consider applicants with a more recent bankruptcy-a mortgage consultant can advise on the regulations of various lenders.
- Reasons for bankruptcy. If a bankruptcy was due to factors beyond your control-like a business failure-this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt, which can affect the terms of an applicant’s mortgage approval.
- Details of bankruptcy. Some lenders will lend if your house and previous mortgage were exempt from the bankruptcy, while others won’t consider an applicant if any real estate shows up on the discharge, exempt or not.
- Size of down payment. When considering giving you a mortgage after bankruptcy, most lenders will consider a minimum 10% down payment consisting of your own funds, not borrowed or from a gift. On a case-by-case basis, a down payment of 5% may be permitted.
- Credit report. A credit report is a detailed history of how consistently your meet your financial obligations. It provides a picture of financial health based on your past behaviour. You can obtain a free copy of your credit report from Equifax and TransUnion.
- Credit score. A credit score is an objective summary that translates personal information from a credit report and other sources into a score between 300 and 900 representing overall creditworthiness. A borrower’s credit score may determine the rate of the mortgage-the higher your score, the better the rate which can be negotiated. Some lenders have minimum credit score requirements for those with a bankruptcy.
- Rate considerations. Most lenders charge a higher interest rate and even some extra fees to those with a bankruptcy. A lender may grant a better rate if certain lending criteria have been met, such as two years since bankruptcy discharge, good re-established credit, a credit score above a minimum level, saved down payment, good debt servicing ratios, and a long-term history of job stability.
- Re-established credit. Re-established credit shows the lender that a prospective borrower has new credit and has managed it well since bankruptcy. Typically, re-established credit should involve a recent record of on-time payments on major bank or credit cards. When re-establishing your credit, you need to be aware that a missed payment at this stage could be mentioned on your credit report for the next six years, and could be grounds for some lenders to decline a mortgage application.
- Don’t do it alone. As your mortgage professional, I can coach you on how to improve your credit score over time. While you work on bettering your score, I can advise you on how you can get a mortgage despite bruised credit.
Please feel free to give me a call, I’d be happy to assist you in getting a mortgage after bankruptcy.
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