10 Tips for Obtaining a Mortgage After Bankruptcy

April 16, 2011 | By | 1 Comment

Mortgage After Bankruptcy in Mississauga and Toronto | CanadianMortgageCo.comSometimes bad financial situations happen to good people and bankruptcy is the only way out. But there’s hope – with a little planning, there are strategies for putting your credit back on track and getting approved for a mortgage after bankruptcy.

To get a mortgage after bankruptcy:

1. Locate 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 and is now a good credit risk.

2. 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 – often two years along with proof of strong, re-established credit. Some lenders may consider applicants with a more recent bankruptcy – talk to a mortgage broker so that you can get up-to-date information on the requirements of various lenders.

3. Reasons for bankruptcy: If a bankruptcy was due to factors beyond your control, this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt.  This can affect the terms of your mortgage approval.

4. Size of down payment: With a past bankruptcy, most lenders like to see a minimum 10% down payment consisting of one’s own funds, and it can’t be borrowed, or a gift.  15% down payment is even better, and gives you more flexibility.  A down payment of 5% or less may be permitted, but only on an exception basis.

5. The type of property: Some lenders will only lend on houses or row townhouses. Very few will consider apartments or stacked townhouses, which may involve more stringent criteria to qualify.   In the Toronto / Mississauga real estate market, condos can be a tougher sell than a detached home.

6. Credit report: A credit report provides a picture of your financial health based on past behaviour. Lenders are looking to see improvements over time.  As well, it is extremely important that there are no negative items showing on your credit report following your bankruptcy discharge.

7. Credit score: A borrower’s credit score may determine the rate of the mortgage — the higher your credit score, the better the rate. Some lenders have minimum credit score requirements for those with a bankruptcy.

8. 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: more than two years since bankruptcy discharge, good re-established credit, minimum beacon scores, saved down payment, good debt servicing ratios, and a long-term history of job stability and confirmed income.

9. 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 – ideally two years or more – of on-time payments on major bank or credit cards. Again, if you are re-building your credit, you need to be aware that a missed payment post-bankruptcy could be mentioned on your credit report for the next six years, and could be grounds for some lenders to decline a mortgage application.  Set up automatic payments for all your bills, and overdraft protection on your accounts, to ensure that this will not happen.

10. Don’t do it alone: Consider asking a mortgage broker for help. For those with bad credit and/or bankruptcy, a mortgage broker can coach you on how to improve your credit score over time. While you work on bettering your score, a mortgage broker can advise you on how to get a mortgage despite bruised credit, and provide valuable expertise, both before, during, and after the mortgage financing process.

Learn more

To read more about getting a mortgage after bankruptcy, take a look at my article “Buying a Home After Bankruptcy? What to Expect”.  For more information on credit, check out these articles within my website: Credit 101, Establishing Credit, and Repairing Bruised Credit.You can also take a look at the terrific information offered on the Financial Consumer Agency of Canada website by clicking here.

Get in touch

If you have any questions, or would like a free evaluation of your options, please don’t hesitate to get in touch with me!

 

Photo credit: [c] Microsoft Clip Art

Filed in: Bankruptcy, Bruised Credit, Credit, Purchase | Tags: , ,

About the Author (Author Profile)

I'm a Toronto Mortgage Broker. My focus is on saving people time and money in financing and re-financing their homes. Am passionate about helping people make informed choices, giving back, and helping to improve financial literacy in Canada.

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