The quick answer is yes, you can get a mortgage after you have been discharged from a bankruptcy. Though the amount of time you can apply after the date of discharge is dependent on which lender you are applying with.
What is Bankruptcy?
Bankruptcy is the legal process that allows individuals to obtain debt relief while still being fair to their creditors or lenders. If you are considering this, you should contact a federally licensed bankruptcy trustee to discuss all of the details involved in declaring bankruptcy and how it will affect your overall financial profile. The other alternative during times of financial distress is Orderly Payment of Debts (OPD), also known as a Consumer Proposal. This process is a little different than a bankruptcy in that a repayment plan is set up and agreed upon by both the individual with all of the debt AND their debtors to retire the total debt owed over a number of years. Again, this discussion should be with a bankruptcy professional.
Do All You Can to Avoid Bankruptcy
If you are thinking of declaring bankruptcy or going into OPD I would strongly suggest you fully educate yourself on the overall financial impact this decision will have on your ability to obtain credit in the future. Given all of the many lenders have very different rules on how long after the discharge date they will lend to you, it is very important to do the “right things” after that discharge date to effectively start the process of “rebuilding” your finances. If you already own a home or would like to buy one sometime in the future after your financial circumstances improve, this may be a conversation you would have with a mortgage professional sooner than later.
Bankruptcy is Not the End of the World
Based on my experience I can say bad things happen to good people and if you are reading this after you have already experienced a bankruptcy or a consumer proposal and have not yet begun to “re-build ” your credit, now is the time and I hope the information below will help you to do just that.
When it comes to getting a new mortgage, good credit is one of the most important attributes a lender is looking for in a potential borrower. Specifically, how you have paid your debts in the past and if there is a black mark on your credit report such as a bankruptcy, in the lenders opinion this is viewed as a fairly big negative regardless of what your credit score is now. Depending on which lender you are working with, it is important to demonstrate the previous credit issues are in the past. The only way you can effectively do that is to manage your new “rebuilt” credit in a satisfactory manner with no late payments at all. This is how the lenders will know they can trust you will make your payments on time and not go into default again.
Rebuilding Your Credit After Bankruptcy
START SAVING– open a savings account or a mutual fund account and have a regular auto-deposit going into that account from your pay cheque account. Over time you will have accumulated a good amount of money which will look good to a potential lender as they like to see some demonstrated savings habits when assessing an application for credit.
APPLY FOR A SECURED CREDIT CARD– after experiencing any credit difficulties a secured credit card will most likely be your only option and this means the credit card company will ask for money up front to be used for security. They in turn will give you a credit card with a similar limit available to use just like any credit card you have had in the past. If you make your payments on time and show mature spending habits such as not charging up to anywhere close to the credit limit, you can eventually ask for an increase in your credit limit or after a period of time it may be easier to then be approved for an unsecured credit card..
DON’T MISS ANY PAYMENTS– This is absolutely imperative as any potential future lenders will be closely scrutinizing your credit habits after you have been discharged from bankruptcy. If you miss a payment or are late on any payments at all, it will not look favorable for any new credit as it shows you may not have learned from your bankruptcy.
MAKE SURE YOUR CREDIT IS REPORTING– when you do get new credit; ask that credit grantor if they will be reporting to the credit bureau on a regular basis. Further to that, be sure all of your payments are being reported accurately by ordering your own credit report on a regular basis from both Equifax.ca and Transunion.ca.
The Bottom Line
When looking to obtain mortgage financing after a bankruptcy, most lenders like to see a minimum of at least 2 years history of new credit reporting since the date of discharge before they will even consider giving you a mortgage. If you have less than 2 years since you were discharged from bankruptcy or consumer proposal, there are still some mortgage options available if you have a larger downpayment, however, they may be at a higher rate and come with an upfront fee.
Lastly, keep your bankruptcy or OPD discharge paperwork somewhere handy as it is highly likely all potential lenders will request them.
If you’re looking for the perspective of an experienced Mortgage Broker, contact the MortgageGirl at 780.433.8412 or email firstname.lastname@example.org. Stay in the loop by following us on Twitter @mortgagegirlca.