It is a common misconception that it is impossible to get a mortgage after filing bankruptcy. Many Canadians are pleased to discover It is a common misconception that it is impossible to get a mortgage after filing bankruptcy. Many Canadians are pleased to discover that this is not in fact the case. There are various ways to get a mortgage after bankruptcy. The key thing to work on is rebuilding your credit report to increase your chances of lenders approving your application. If this is a focus for you once you have been discharged from bankruptcy, it is possible to be considered by a mortgage lender even after two years. This is because the Canada Mortgage and Housing Corporation will review your application around 1.5 to 2 years after a bankruptcy discharge. At this point, life after bankruptcy becomes a lot easier for those wanting a mortgage. In this article, we address how you can increase your chances of qualifying for a mortgage after bankruptcy.
Can you keep your mortgage through bankruptcy?
If you already have a mortgage before declaring bankruptcy, it is possible to keep your home. Before starting the bankruptcy process, your Licensed Insolvency Trustee will work with you on an assignment in bankruptcy. This is where your trustee will work to maximize what is given to creditors to whom you owe money. This includes any property, provided it has equity. If the value of your property is equal to what may be owed on your mortgage, your bankruptcy trustee may allow you to keep your home and continue making the payments. This means you can continue to have a mortgage after bankruptcy. Equally, if there is equity in your property, provided you can pay in the value of the equity into your bankruptcy, you may also be able to keep your home.
What happens when it is time to renew your mortgage?
Should you have continued to pay your mortgage through bankruptcy, it can be a little confusing knowing where you stand when it comes to renewing your mortgage. Are you able to stay with the same bank, or do you need to move? How does it work if you need to get a mortgage with another bank? It is important to remember that most banks would rather you renewed your mortgage and continued to pay off the amount and interest, rather than foreclosing on your property. This is because it would mean potentially losing any future profits by selling it at a disclosure price that is reduced. Therefore, provided that your mortgage payments are current, you should be able to renew your mortgage with a lender after bankruptcy.
Can I qualify for a mortgage after bankruptcy?
It is possible to buy a home after filing bankruptcy in as little as two years after discharge from bankruptcy. Often, this can even be at the same interest rate and downpayment as somebody who may have never filed bankruptcy. This is despite somebody who has been discharged having bankruptcy on their credit report for six years after being cleared. Having a bankruptcy on your credit report does not mean that you automatically cannot borrow from a lender. In fact, some lenders find this preferential as those who have been discharged will not have any debt and therefore may come with less risk.
How to get a mortgage after bankruptcy
There are a few key actions you can take to improve your chances of securing a mortgage after being discharged from bankruptcy. We have listed them below:
Get a secured credit card
Gaining a credit card after bankruptcy is one of the best ways to begin rebuilding your credit. It can be challenging knowing how to get a credit card after bankruptcy, but fortunately there are a number of ways you can begin using a card and building up credit. A secured credit card is the most obvious way after bankruptcy. You essentially provide an upfront security deposit equal to the value of the credit card (or more) in case you default. Once you receive your credit card, you should repay it in full and on time in order to receive your deposit back, and to rebuild your credit score. Mortgage lenders will then take this into consideration when looking at your application.
Do your research
While you wait for the right time to apply for your mortgage, it is a good idea to work on some other factors that will aid your application. This includes ensuring you have a steady income, and looking for a property that perhaps does not require a huge loan compared to its value. It is a good opportunity also to save money as you work towards your goal. Other factors include being mindful of the condition and value of the property, and to factor in any other assets you may have that could support your mortgage application.
Wait for the right time to apply
Mortgage lenders will be reluctant to offer you a mortgage as soon as you have been discharged from bankruptcy. For this reason, most people wait until they have been discharged from bankruptcy for around two years. You can use this time carefully to begin rebuilding your credit, and even working with your Licensed Insolvency Trustee to establish how best to get a mortgage. After this time, your application is likely to be reviewed by mortgage lenders. It is a good idea to start your application to lenders with experience in lending to those who have been through bankruptcy, or who have a poor credit report.
What type of mortgage should you get after bankruptcy?
Mortgage lenders can often think of somebody who has been bankrupt as appropriate for a mortgage because they are able to charge higher interest on the mortgage, are unlikely to have any outstanding debts, and are often more responsible financially, especially after attending obligatory credit counselling sessions. There are three primary different types of mortgage you may get, depending on your circumstances. They are dependent on the following criteria:
- When you were discharged from bankruptcy
- Your current credit score
- The amount of downpayment you have
- The amount of debt you are paying back compared to your total income
- The amount you are borrowing compared to the property’s value
The above criteria can then help to inform which mortgage may be best suited to you following bankruptcy:
Traditional or prime insured mortgage
A traditional mortgage is most likely to give you the best rate. To qualify, you must have been discharged from bankruptcy for two years at a minimum, and have at least a year of reestablished credit on two credit items. You must also have a downpayment of 5% for the initial $500,000 of your property purchase, and an additional 10% for anything over this amount. If you don’t have a sufficient downpayment, you will need mortgage insurance through Canada Mortgage and Housing Corporation.
A subprime mortgage is for anyone who may not be able to secure or qualify for a traditional mortgage. They may, however, exceed the criteria required for a private mortgage. To secure a subprime mortgage, you must have been discharged from bankruptcy for a minimum of three months to a year.
It is possible to secure a mortgage from a private lender immediately after being discharged from bankruptcy. In fact, you don’t even need to have any reestablished credit. This does mean, however, that you are likely to have a mortgage rate much higher than a traditional mortgage. In order to gain a private mortgage, you will likely need a downpayment of 15%, a full appraisal to share with the lender, and a lender commitment fee which is typically 1% of the value of the property.
If you want to learn more about qualifying for a mortgage after bankruptcy, book a free consultation with one of our experienced Licensed Insolvency Trustees. We will walk you through each step of the bankruptcy process. At Spergel, we have helped over 100,000 Canadians become debt free, and you could be next. You owe it to yourself.