Purchasing a Home After Filing Bankruptcy
Purchasing a Home after Filing Bankruptcy –
You can purchase a home, in as little as two years after filing bankruptcy, for the same interest rate and down payment as a person who has never filed bankruptcy.
First let’s dispel the myth that a person cannot get credit and a mortgage because the record of a bankruptcy is on the credit bureau for 6 years after the discharge.
To be eligible for a mortgage a discharged bankrupt must start to rebuild his credit as soon as he receives his or her bankruptcy discharge.
It’s true that a discharged bankrupt’s record of bankruptcy stays on his credit report for 6 years after discharge.
However, that does not prevent a lender from lending money to a former bankrupt. In fact, a person discharged from bankruptcy is a better credit risk because his debts have been erased.
To be eligible for a mortgage a discharged bankrupt must start to rebuild his credit as soon as he receives his discharge.
Step #1 – Check your credit report to identify any errors. You can request a FREE credit report from Equifax.
Step #2 – Contact the credit bureau to correct errors by using this form.
Step #3 – Get a secured credit card. It is new credit you gain after your discharge that increases your credit score and indicates to lenders that you are able to handle credit responsibly.
Make all your payments on time! Do not use more than 75% (50% is better) of your available credit. So, for example, If you get a credit card with a limit of $1,000.00 don’t charge more than $750.00 and pay the $750.00 back when due. Never miss a payment!
Secured Credit Cards
Using a secured credit card is a quick way to rebuild your credit rating. Peoples Trust reports your payment history to the credit bureaus each month. As you make regular payments your credit history looks better and better.
Card Features include:
- Minimum deposit of $500
- Credit limit is 100% of security deposit
- Monthly fee for cardholder is $5.95
- One time set up fee of $49.00
- Security deposit earns interest annually in a CDIC insured GIC Account (current rate is 0.50%)
- Available in all Canadian Provinces
- Approval is virtually guaranteed
Step # 4 – Get other credit such as a car loan or a loan to purchase a RRSP. Make your payments on time and never miss a payment.
Step #5 – Start to save for your down payment. You will need at least a 5% down payment and sufficient income to support mortgage payments.
The minimum down payment is 5% with a mortgage guaranteed by CMHC. To qualify for this mortgage you must have been discharged from bankruptcy for at least two years and one day and have at least one year of re-established credit.
Canadian Mortgage and Housing Corporation (CMHC) provides these requirements to qualify for homeowner mortgage loan insurance.
Step #6 – Get a mortgage broker to get you the best mortgage possible at no cost to you.
If you have any questions about this or other aspects of bankruptcy or consumer proposals you can set up a FREE consultation with our trustees, who are in every province and territory in Canada.