Buying a House and Getting a Mortgage After Bankruptcy
Bankruptcy is often viewed as a financial dead-end, but it doesn’t necessarily mean the end of your dreams of homeownership. Despite the challenges, it’s still possible to buy a house after bankruptcy in Canada. This comprehensive guide provides insights into the process, obstacles, and strategies to help you navigate the path to homeownership post-bankruptcy.
The Impact of Bankruptcy on Your Mortgage
Contrary to popular belief, declaring bankruptcy doesn’t automatically mean you’ll lose your home or be unable to secure a mortgage. However, it’s crucial to understand how bankruptcy can influence your existing or future mortgage arrangements.
Keeping Your Mortgage After Bankruptcy
If you’re already a homeowner and are considering bankruptcy, the fate of your home largely depends on your equity and your ability to keep up with mortgage payments. If you have minimal equity and can maintain your payments, you may be able to keep your home.
Bankruptcy and Mortgage Debt
Generally, bankruptcy discharges unsecured debts, but secured debts like your mortgage remain intact. If you fall behind on payments, your lender has the right to seize the property and sell it to recoup the debt.
Buying a House Post-Bankruptcy
Bankruptcy can undoubtedly delay your plans to buy a house, but it doesn’t entirely halt them. You can use the waiting period post-bankruptcy to repair your credit and enhance your chances of securing a mortgage in the future.
When Can You Buy a House After Bankruptcy?
Bankruptcy records can linger on your credit report for up to 10 years. However, you don’t have to wait that long to apply for a mortgage. Typically, waiting for 2 years post-bankruptcy allows you to access better terms and interest rates.
Renewing Your Mortgage After Bankruptcy
As long as you’re current on your mortgage payments, most lenders would prefer to have you renew your mortgage rather than foreclose. It’s always wise to consult your lender for specific information as policies may vary.
How to Secure a Mortgage After Bankruptcy
While bankruptcy can delay your mortgage application process, there are several strategies to improve your approval chances.
Rebuilding Your Credit
The first step to securing a mortgage post-bankruptcy is rebuilding your credit. Regularly check your credit score to identify areas needing improvement and rectify any errors.
Down Payments
A minimum down payment of 5% is typically required, along with a stable income to support the mortgage payments.
Timing Your Application
Waiting for at least 2 years after your bankruptcy discharge before applying for a mortgage can increase your eligibility for better rates.
Demonstrating Creditworthiness
Proving you’ve re-established your credit post-bankruptcy can increase your chances of securing a mortgage. Consider getting a secured credit card to start rebuilding your credit history.
Property Appraisal
You may need to request a full appraisal of the property you’re interested in buying. This valuation reassures the lender about their loan investment and justifies the amount you’re offering for the property.
Types of Mortgages Post-Bankruptcy
There are typically three types of mortgages you can consider after bankruptcy, depending on your specific circumstances:
- Traditional or Prime Insured Mortgage: This type is usually the best in terms of rates. To qualify, you must have been discharged from bankruptcy for a minimum of 2 years and have at least a year of reestablished credit on two credit items.
- Subprime Mortgage: This option is for those who may not qualify for a traditional mortgage. You could qualify as soon as 3 months to a year after discharge, but it requires a significant down payment.
- Private Mortgage: With this option, you can secure a mortgage immediately after discharge without any reestablished credit. However, expect higher interest rates and a larger down payment.
Final Thoughts
Bankruptcy doesn’t have to spell the end of your homeownership dreams. With proper planning and financial management, you can still own a home after bankruptcy. If you need further guidance or assistance, consider consulting with a Licensed Insolvency Trustee or a financial advisor to help navigate your unique situation.
Remember, the path to homeownership after bankruptcy requires patience, meticulous planning, and diligent credit repair. With time and effort, you can rebuild your financial reputation and achieve the dream of owning a home once again.
