10 Tips for Obtaining a Mortgage After Bankruptcy

April 15, 2011 | By | Add a Comment

Hope after bankruptcy

Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But there’s hope – there are a number of strategies for putting your credit back on track and getting approved for a mortgage, even after bankruptcy.  I’ve worked with many people to do just that.

Here are some points to consider:

1. Locate the right mortgage lender

Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report. However, alternative lenders, sometimes called “B” lenders or “non-conforming” lenders may consider doing so, provided you can demonstrate that you have the income to support the payments and you’re now a good credit risk.

2. Length of time since your bankruptcy discharge

Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage.  Some look for  your discharge to be at least two years behind you, along with proof of strong, re-established credit. Other lenders may consider applicants with a more recent bankruptcy, as long as the other aspects of your application are strong.  A mortgage broker experienced in working with post-bankruptcy can give you more specifics on which lenders will work best for your situation.

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, which can affect the terms of an applicant’s mortgage approval.

4. Size of down payment

With a past bankruptcy or consumer proposal, most mainstream lenders like to see a minimum 10% down payment.  It needs to come from your own funds, and it can’t be borrowed, or a gift. A down payment of 5% or less may be permitted, only on a rare, exception basis.

5. The type of property

Some lenders will only lend on detached or semi-detached homes or freehold townhomes in an urban area. Condos, apartments or stacked townhouses may involve more stringent criteria to qualify, or a bigger down payment.  Similarly, lenders may ask for bigger down payments on properties in small towns or more rural areas.  In the Toronto / Mississauga area, high-rise 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.  Check out my articles on repairing bruised credit here.  As well, it is extremely important that there are no negative items showing on your credit report once you’ve discharged the bankruptcy.

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. Mortgage 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 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 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 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. 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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