Mortgage after bankruptcy – how to get a fair deal

How to get a fair mortgage deal after bankruptcy

Buying a home is a significant milestone, and it can feel daunting, especially after going through bankruptcy. However, owning a home after bankruptcy is achievable with careful planning and a proactive approach to securing a mortgage. In Canada, there are specific steps and strategies to help you get a fair mortgage deal even after a financial setback like bankruptcy.

Steps to take to ensure you have good mortgage options

1. Review your finances in detail

Start by assessing your financial situation. The first step is to check your credit score on Equifax and TransUnion. Don’t worry – you can do this as often as you like, without negatively impacting your credit. It’s important to check what shows up on the report, including debts that were written off in the bankruptcy, any debts remaining, or new borrowing that shows up, and to make sure that there aren’t any mistakes that need correcting now that the dust has settled following your bankruptcy. As well, review your current income and how much money you feel you can comfortably spend on owning a home. This evaluation will give you an understanding of your financial situation and how much you can afford.

2. Focus on rebuilding your credit the minute your bankruptcy is discharged

This is one of the most important steps to take. Over time, responsible credit use will enhance your creditworthiness and help potential lenders feel comfortable giving you a mortgage. How to do this? In brief, you need to work on getting two new credit facilities – credit cards are typically the least costly option – and I do mean new. They need to be credit facilities that you obtain after the bankruptcy. Secured cards may be the best option if you can’t get a credit card any other way. Then you need to use them responsibly, and allow them to start to “age”. For more detail, check out my posts on fixing your credit after bankruptcy and repairing bruised credit.

3. Beef up your down payment

Saving for a down payment that is as large as possible is a strategic move. Not only does it reduce your mortgage amount, but it also portrays you as a committed buyer. There are a couple of paths you can consider here. If you want to buy a home as soon as possible, you must aim for a down payment of at least 20% or more. Alternatively, if you are okay with waiting until two or more years have passed following your bankruptcy, and you have at least two years of re-established credit as explained above, you may be able to buy a home with less than 20% down. Not all mortgage lenders are willing to do this, but many are. To dive deeper into this aspect of buying your post-bankruptcy home, check out my post on what to expect.

4. Work with an experienced post-bankruptcy mortgage broker

It’s very important that you choose to work with a reputable mortgage broker who is experienced in assisting individuals with a less-than-perfect credit, particularly bankruptcy. A mortgage broker can be a valuable asset in your home-buying journey after bankruptcy, and should be able to capably explain the game plan for getting the best mortgage possible in your financial situation. You should be able to move ahead with a clear understanding of what you need to do, what your options are, and how much each option will cost, so that you can make informed choices.

5. Be transparent

When applying for a mortgage, be honest about your bankruptcy. Explain the circumstances that led to it and highlight how you’ve learned from the experience. Demonstrating financial responsibility and a solid plan for the future can improve your chances of approval by building trust with your mortgage lender. No one likes surprises during the mortgage process. Your mortgage broker needs to see the good, the bad, and the ugly, in order to work with you to find the best pathway forward.

6. Be open to non-traditional lenders

Don’t limit yourself to the big banks – they are often the most rigid when considering mortgages for people following a bankruptcy. You will get the best mortgage advice through working with a mortgage broker who is experienced in the best ways to get a mortgage post-bankruptcy. Options beyond mainstream banks may range from monoline lenders, who are still “A” lenders but simply operate online rather than through a branch network, smaller banks, and lenders such as credit unions or trust companies, who may lean toward “B” lender territory. These institutions often have more flexible and common-sense lending criteria and can be more open to working with individuals who have experienced financial setbacks.

Want to discuss getting a mortgage after bankruptcy?

Although buying a home after bankruptcy can present challenges, it’s certainly not impossible, and I have helped many people do just that. With careful planning, diligent financial management, and the right guidance, you can secure a fair mortgage deal and move closer to achieving your dream of homeownership.

Please feel free to reach out and discuss your own situation in more detail. I’ve helped many people get fair deals on their mortgages after bankruptcy and am happy to discuss your options with you!

Photo credit [c] wichayada suwanachun for vecteezy

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