Sometimes bad financial situations happen to good people and bankruptcy is the only way out. In this article, we present the answers to some of the questions we are frequently asked about bankruptcy mortgages and give you guidance on what you need to get a mortgage after bankruptcy.
How long do I need to wait after my bankruptcy discharge before I can apply for a mortgage?
In order to get the best rates available in the marketplace, lenders are looking to see that a homebuyer or homeowner has had at least two solid years after being discharged without defaults and included in the two-year period, one year of strong re-established credit.
I’m a discharged bankrupt – will my interest rate be higher than the norm?
Not necessarily, if you have been discharged from bankruptcy for less than two years or have not yet established one year of credit after a bankruptcy discharge, it is still possible to apply for a mortgage but you will most likely need to qualify under alternative lending methods which could mean higher than normal rates.
Does my reason for going bankrupt affect my mortgage chances?
It is extremely important to portray a sensible rationale for why the bankruptcy occurred and that you can demonstrate that this was an isolated occurrence. The lender will need to be assured that you are ‘on top’ of your finances and can service debt. We understand major life events happen, deaths, accidents, business failure, and divorce are all understandable life occurrences that can result in bankruptcy.
Is my credit score important post my bankruptcy?
As with any credit application, your credit score will factor into the decision, but with post-bankruptcy applications, the criteria are slightly more complex. As well as being discharged from bankruptcy for at least two years, lenders are also looking for one combined year of rebuilding credit with strict guidelines on repayment habits. It is strongly advised never to miss a payment while rebuilding your credit after a bankruptcy.
Frequently credit reports contain errors that can be damaging to people’s histories and cost them significant amounts of money through increased interest rates. To obtain your free report, contact Equifax or Transunion.
The free reports, while useful, will not contain your credit score but will contain notes about your history. Sometimes issues that were settled before or during a bankruptcy with creditors are neglected to be removed from the record afterwards. Ensuring that the credit report is accurate and does not contain any unnecessary notes against you can significantly increase your overall credit score.
Does job stability improve my chances of getting a mortgage after bankruptcy?
Ideally, you should be in your current job or in the same field of work for over a period of two to three years and show strong job tenure. Lenders will evaluate the entire application and also look for strong income to repay the mortgage with a low risk of default.
How much down payment would I need to get a bankrupt’s mortgage?
If the bankruptcy discharge period is at least two years you are looking at 20% down payment or less to secure a mortgage. With 20% or less down, your mortgage must be insured by Canadian Mortgage and Housing Corporation (CMHC), Genworth or Canada Guaranty.
The source of the current down payment must be known. Money that has been earned, accumulated, and saved then will be used for a down payment is most valuable because it shows that the applicant has the ability to budget effectively and achieve financial goals. Gifted money, on the other hand, is not valued as highly. In the case of gifts, the bank is relying heavily on the source’s ability and willingness to continue to support the applicant if his or her financial situation does not improve.
How much can I borrow after bankruptcy?
Depending on income and current liabilities, with applications of less than 20% down, our lenders will use a conservative qualifying ratio of 35/42%, whereby up to 35% of your income is to be used towards the mortgage payment, heating costs, property taxes and/or strata fee payments. Any liabilities outside of the housing equation such as a car loan or credit card debt will be factored into the total ratio of 42% (including the housing expense). For more information on how we can help ex-bankruptcy applicants and source a lender who is willing to lend to them after being discharged, please contact us or apply now for a free online quote.
