Sometimes 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 in Canada.

To get a mortgage after bankruptcy:

1. Approach 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 that you can demonstrate that you have the income to support the payments and that you’re now a good credit risk.

2. Look at how long it’s been since your bankruptcy discharge

Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage. Mainstream lenders typically want to see that a discharge at least two years ago, along with proof of strong, re-established credit. Alternative lenders will consider you even with a more recent bankruptcy, even as little as one day after you’ve been discharged. A mortgage broker with experience with post-bankruptcy mortgages is your best bet in helping you learn 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 often more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive spending.  This can affect the terms of your mortgage approval. Again, an experienced mortgage broker can help present your situation in the most favourable light.

4. Size of down payment

With a past bankruptcy, most lenders like to see that you have at least a 10% down payment. Also, at least some of it should be from your own savings, rather than borrowed, or gifted to you. A 15% down payment is even better, and gives you more flexibility.  A down payment of 5% or less is only occasionally permitted, but only on an exception basis, and likely after a longer time after your discharge.

5. The type of property

If you’re looking at getting a mortgage after a bankruptcy, you may encounter more stringent criteria pertaining to the property or location. For example, in the Toronto and greater Toronto area real estate market, micro-condos can be a tougher sell than a detached home, and a fixer-upper property may be harder to finance than a property that is in good condition.

6. Credit report

Your credit report provides a detailed breakdown of your financial health based on your past financial activities. 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

Your credit score may determine the rate of the mortgage you’re offered. 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. Things that help you get a better rate are:

• more than two years since bankruptcy discharge,
• at least two years’ worth of re-established credit,
• higher credit scores,
• larger down payment, and
• a long-term history of job stability and confirmed income.

9. Re-established credit

Re-established credit shows lenders that you have new credit and that you’ve managed it well since bankruptcy. This should involve a recent record – at least two years – of on-time payments on major credit cards. And, the credit cards need to be new cards opened after the bankruptcy discharge. A missed payment post-bankruptcy 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 never happen.

10. Don’t do it alone

Consider asking for help from a mortgage broker with experience working with people getting mortgages after bankruptcy. For those with bad credit and/or bankruptcy, a mortgage broker can coach you on how to improve your credit score over time. As well, a mortgage broker can help you put together a game plan for getting a mortgage on your time frame. In addition, she can 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 info 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!

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