Life After Bankruptcy: Bankruptcy and Mortgages
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By Bromwich+Smith Staff | 785 words | Reading Time: 4 minutes | Date: 2021/12/10
Filing for bankruptcy does not have to mean the end to your credit score for the rest of your life. In fact, filing for bankruptcy can end a poor credit situation and give you the power to rebuild your worth.
After you complete your bankruptcy, the burden of debts you can’t pay will be wiped out, with a few exceptions. Out of all our clients, 97% feel a great sense of relief at finally achieving that fresh financial start they were looking for.
As well, the lessons you have learned will be valuable for your future success. Credit counselling is part of the bankruptcy process, which will have given you new abilities to better manage your finances. If you want to rebuild your worth, you now have the tools!
Bankruptcy and Mortgages
If you’ve been bankrupt, you may have given up on the idea of ever owning a home again. The good news is that you can get a mortgage after bankruptcy. It will take work to rebuild your credit and some time to show you can manage your finances effectively, but home ownership is still possible.
Mortgage lenders will look at five criteria when assessing whether they will issue you a mortgage: character, collateral, capacity, capital and credit score. If a lender sees that you have taken steps to rebuild your credit and you meet their other lending criteria then you may qualify for a mortgage with a bankruptcy on your record.
Here are a few key factors to keep in mind that will affect your ability to obtain a mortgage after bankruptcy.
Bankruptcy and your credit
We know that bankruptcy is tough on your credit score: it will have a significant negative impact. Because mortgage lenders use your credit history and score when deciding whether or not to approve your loan, it’s important for you to have good numbers.
Your bankruptcy is reported to Canada’s two credit agencies, Trans Union and Equifax. They assign a score to each of your debts (e.g. credit card, car loan, mortgage). The highest score is an R-1 and means that you pay this bill on time. The lowest score is an R-9 and indicates that you have been or are bankrupt. Your bankruptcy will stay on your report for 6 years after your discharge.
Rebuilding Your Credit
While your credit score will be affected for the 9 months you are bankrupt plus 6 years after discharge, once you are discharged you can begin rebuilding your credit.
The first and most important step in your rebuilding plan is to begin saving. A savings account will prepare you for unexpected expenses, provide cash for purchases, and prevent you from having to live from paycheque to paycheque. Your savings account will also allow you to begin preparing for homeownership by providing you with a down payment.
You can also repair your credit score by making timely payments on debt that was not included in your bankruptcy. On-time payments made on your automobile or other secured debt while you are bankrupt and after discharge show you are determined to repay your debts.
You may also be able to open a small secured credit card account after your discharge. Choose one that reports to Trans Union or Equifax, keep your balance below 50% of your limit, and make all payments on time.
For more details feel free to visit our online webinars in partnership with Richard Moxley, author and credit expert.
Mortgage after bankruptcy—are you ready?
You can apply for a mortgage about two years after your discharge. If you have built a savings account and handled your credit successfully over at least two years, lenders may be willing to finance your new home.
- Require a larger down payment, sometimes 15 to 25%
- Charge a higher interest rate
- Be more lenient if your bankruptcy was caused by personal hardship
- Require a full appraisal or limit the kind of home they are willing to finance
A mortgage broker can also help you in finding lenders willing to work with you and provide you with suggestions for improving your credit score and working with mortgage lenders.
There really is life after bankruptcy along with hope to reestablish your financial security, and your new home will make all your hard work worth the effort. We offer an initial free, no obligation, confidential consultation by phone 1.855.884.9243 or video. You can also request a call back at our contact us page. Our team of Debt Relief Specialists are here to assist you with unbiased and nonjudgmental support, ensuring you find the right solution that will help you conquer your debt and rebuild your worth today. We’re here if you need us and are excited to see you conquering your debt.
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