Many Canadians believe that after declaring bankruptcy, obtaining a mortgage is an impossible feat. But, this is far from the truth. There are a number of mortgage financing options available to those who have declared bankruptcy in the past.
The distinguishing criterion which determines which lender you can work with is your credit or beacon score. So after bankruptcy, building up your score should be a priority. If you work diligently to improve your score, your chances of being approved by a prime lender as soon as two years after being discharged are quite high.
After bankruptcy, you should get a credit card to start reporting and rebuilding your credit. Take the initiative of rebuilding your credit history and the opportunity of a clean slate. Ensure that you stay on top of monthly payments and pay your credit card bill on time and if possible, in full. By doing this, you’ll rebuild your credit for lenders to take into consideration when you eventually apply for a mortgage.
Bankruptcy mortgage lenders
Most prime mortgage lenders will be able to provide you with a mortgage if you are two years clear of bankruptcy. That is, two years from the time you were discharged, not from the time you declared bankruptcy.
So, 24 months later, you could potentially build up your credit score to be in a position where some prime lenders will consider your file. If your credit still isn’t up to par, consult lenders who have experience lending to clients with bad credit.
Consumer proposals are a means of avoiding bankruptcy through negotiating a legally binding agreement with your creditors. Instead of declaring bankruptcy, you can propose paying a portion of each of your debts back. The people who hold your debt have to agree to it, of course.
For example, let’s say that you owe $50,000 distributed over credit cards, lines of credit, car loans and other debt. You are currently employed and you can afford to make some of the payments but not repay the full amount.
You can connect with a consumer proposal administrator who will help you file your proposal. You propose paying a monthly sum of, say, $400 for the next 4 years which will amount to $19,200. Each of your creditors will vote on the proposal and if they all accept, at the end of the agreement and your payments, you eliminate all your outstanding debt.
For your creditors to accept the proposal, you will have to offer to pay more than they would have received if you declared bankruptcy. Your administrator can help you estimate that amount.
If the creditors accept your proposal, then your credit will clear from the time they clear the consumer proposal (which is once you pay them back). At that point, your credit will be reasonable and would probably have passed the 600 credit score range. 600 is not a great credit score; however, it may be enough for prime lenders to work with. If your credit score isn’t good enough, then your next best option is to make contact with a bad credit lender or private lender.
Most important documentation
Your credit score will be your most important piece of documentation when you try to obtain a post bankruptcy loan with a mortgage lender. Other criteria include:
- Loan-to-value ratio in the property
- Value and condition of the property itself
- Other assets that you may have
Since your credit score is the primary factor that determines which lender you can work with, start building your beacon score as soon as possible. A prime lender can usually get you the lowest mortgage rates on the market so make this your first option. However, if you are turned away from prime lenders you still have the option of working with a conventional lender who deals with bad credit. Your final option is a private mortgage lender who will evaluate you on an individual basis and determine if you are a good client to take on.