Home ownership is one of the top goals for people who have recently been discharged from a bankruptcy or cleared a consumer proposal. During the bankruptcy or proposal, it is common for people to lose many of their assets, including RRSP savings, valuable possessions, cars or other vehicles, and their home.
If you lost your home as a result of a bankruptcy and you are ready for homeownership again, then we can help. Don’t let the past hold you back — many Canadians will successfully rebuild their credit after being discharged from a personal bankruptcy. Financial programs exist to support individuals recovering from a bankruptcy and help them secure mortgages as little as one day after being discharged from their obligations.
If you want to become a homeowner again, watch the video below to find out how we can help you:
Tips for Mortgage Applications as a Discharged Bankrupt
When you apply for a mortgage after bankruptcy, your ability to get approval will depend on the following criteria:
- Your credit score
- Your current income
- The amount available for a down payment on a new property
Your credit score is probably the most important factor in securing a mortgage. As a discharged bankrupt, you will be starting from scratch, so it is important that you begin rebuilding your credit as soon as possible. Click here for ways to rebuild your credit post-bankruptcy.
Showing a Steady Income
Did your business go under and cause you to go bankrupt? We know many people in the same situation and we understand how tough it can be to go back to a regular job. However, as a discharged bankrupt, it is very important to show a record of steady employment after bankruptcy, if you want to apply for a mortgage.
A reliable income will demonstrate to lenders that you are capable of supporting a new mortgage going forward. Try to avoid switching jobs or having periods of unemployment.
Not only will a steady income help you pay off your debt, it will also help you start saving for a down payment.
Saving for Your Down Payment
If you are able to save a significant down payment for your new home, this will help dramatically with the mortgage approval process. Providing a large down payment may also improve the loan-to-value ratio (LTV) of your future property, which is another factor that lenders will consider.
Your loan-to-value ratio is the financial term used by lenders to show what percentage of a property’s value the loan is covering. Typically, lenders are looking for LTV ratios between 95% and 80%. Lower LTV ratios carry lower risks for lenders and are preferred, as they indicate a larger down payment has been made by the borrower.
Most mainstream lenders will want to see a down payment of minimum 10% after a bankruptcy or consumer proposal. Some lenders may accept a down payment of 5%, but only in rare circumstances.
Mortgage Lenders for Discharged Bankrupts
It is also very important to find the right mortgage lender for your specific situation. As you examine different options, remember to ask:
- How long ago was your bankruptcy discharged?
- How long have you been working to rebuild your credit?
The answers to these two questions will help you determine whether you can apply for a mortgage with a traditional mortgage lender in Canada, such as one of the big banks or a credit union, or with an alternative lender.
Traditional Mortgage Lenders
Getting a mortgage through a traditional lender, or A lender, allows you to get a mortgage with the best available rates with a smaller down payment. However, qualifying for a mortgage with a prime lender as a discharged bankrupt also requires that:
- The down payment is pulled from your own resources, i.e. a savings account, RRSP, or investment account.
- You were discharged from bankruptcy approximately 24 months ago. This timeframe will depend on the lender and may be longer in certain cases.
- You are be able to show two years of re-established credit. Your credit record within this time frame must not show any missed or late payments.
Alternative lenders, also known as Alt-A and B lenders, provide more flexibility in obtaining a mortgage, if you are a discharged bankrupt. In fact, you may be able to start the process of getting a mortgage through an alternative mortgage lender as soon as one day after you’ve been discharged. Keep in mind that:
- The minimum down payment is 15% of the purchase price, but 20 – 25% is better.
- Costs will be higher, including interest rates and commitment fees.
- An alternative lender will only sign off if you’ve provided them with a full appraisal of your property, to show that the loan amount does not exceed the property value.
Obtaining a mortgage with an Alt-A or B lender is typically a short-term solution. If you’re able to build your credit over a period of one to three years, you should be eligible to apply for a mortgage through a traditional lender after this period.
At Main Street Mortgage, we can help connect you with a network of 200+ Alt-A and B lenders across Canada. We make it simple for people in any situation to access a mortgage and we understand that your credit history does not always fairly reflect you.