Buying a home after bankruptcy is entirely possible

Facing bankruptcy is a significant financial event, but it doesn’t mean homeownership is off the table forever! In my years as a mortgage broker, I’ve helped many clients navigate the path to buying a home after bankruptcy. While your journey may require a bit more patience and discipline, it is entirely possible.

How to buy a home after bankruptcy in 5 steps:

1 – Rebuild your credit

Rebuilding your credit is the cornerstone of qualifying for a mortgage after bankruptcy or consumer proposal. There are mistaken beliefs that you have to wait two years or seven years after bankruptcy before looking for a mortgage. In fact, it is actually the length of your re-established credit history that determines whether you can get a mortgage, and what type of mortgage lender you can get a mortgage from. I have written a ton of posts about this on my blog because it’s one of the most important things you need to address, not just after bankruptcy or consumer proposal.

2 – Save aggressively for your down payment

After bankruptcy, having a substantial down payment counts significantly toward your chances of securing a mortgage. The main thing you need to know here is that the larger your down payment, the sooner you’ll be able to buy. As such, you’ll obviously want to strive for the largest down payment possible. While you might eventually qualify with as little as 5% of the home’s purchase price, depending on the mortgage lender’s requirements (and, if your down payment is less than 20%, the default insurer’s requirements), it is much more typical for mainstream lenders to ask for at least a 10% down payment in the first couple of years after you’ve re-established your credit. And, if you don’t want to wait for several years to re-establish your credit, you’ll need to consider alternative lenders or B lenders. They’ll want to see at least a 20% down payment.

3 – Show income stability over time

Lenders want to see that you have a steady and reliable source of income with which you’ll be making your mortgage payments. This could mean sticking with the same employer for a while. Or, showing consistent earnings in your financial statements or your business bank accounts if you’re self-employed. If you have additional income through a part-time job or the like, this also needs to be documented. And, the longer you’ve had this secondary income, the more helpful it will be. You may also want to consider whether there is someone you’re close with who would be willing to act as a co-signer or guarantor on your mortgage. This can help bolster the strength of your application until you’re able to qualify on your own.

4 – Get pre-qualified

When you’re getting ready to buy a home, and therefore needing a mortgage, preapproval and prequalification are often used interchangeably. However, it’s important for you to know that simply getting a preapproval does not go far enough for you to rely on it in a post-bankruptcy situation.

A preapproval is typically is a quick estimate of your mortgage eligibility. It’s often based on your self-reported financial details and a surface level review of your credit rating. Typically all that’s needed is a credit check. The preapproval you end up with is basically a rate hold with lots of fine print and caveats. Prequalification, on the other hand, is a much more thorough process. In addition to reviewing your credit rating and your credit report, we take a detailed look at your income documents and down payment breakdown. The end result is for you to have a much more informed understanding of your mortgage options.

5 – Get a professional mortgage game plan

In my years of working with post-bankruptcy clients, I have found that it is important to come up with a mortgage game plan that covers a number of points. These include evaluating your options over different time frames, with different down payment amounts, and between different mortgage lenders. My objective is always to give you the information you need to make informed decisions. Reviewing a number of options and the associated requirements allows you to do that. Then when you’re ready to buy your home, you can be secure in the knowledge that you’re set to go.

Buying after bankruptcy is challenging, yet possible

Buying a home after bankruptcy discharge is challenging but far from impossible. With determination, smart financial habits, and the support of a knowledgeable mortgage broker, you can overcome past financial setbacks and secure the home of your dreams. If you’re ready to start planning your journey to homeownership, reach out today for personalized advice and guidance. I’d love to help make your dream a reality!

If instead you’d like to learn more, please check out the many posts on my site. I hope you find them useful!

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