Increasingly stricter mortgage regulations in Canada have prompted the question: If you have to file bankruptcy is a mortgage still attainable? Most Canadians think of this as not possible, but let’s review what bankruptcy is and how you can rebuild your credit score after going bankrupt.
What happens when you file bankruptcy
When you are filing bankruptcy, you will be working with a trustee to generate a list of creditors and assets. They will also prepare the paperwork for your bankruptcy. After you’ve reviewed this to ensure all your outstanding debts are accounted for, you will sign, and bankruptcy starts. At this point your trustee will ensure all creditors are aware of your bankruptcy proceedings so they will no longer contact you for payment etc. You will have obligations to do monthly reporting, credit counselling and any other obligations as listed by your trustee, until a point you are discharged from your bankruptcy, which usually takes about nine months.
How do you rebuild your credit
You can start rebuilding your credit as soon as you are discharged from bankruptcy. Most lenders require that two years pass from the time you get discharged to the time you apply for a mortgage. A great way to get started is by getting a form of prepaid credit card, which simply means you pay the upfront balance of the card ($500 upfront for a $500 card). It is a risk-free credit card for the company and allows you to start rebuilding your credit. Along with this, you will want to have two trade lines (credit cards, car payments, loan payments, etc.). Based on how long after you’ve been discharged, along with how much credit rebuilding you have done, will determine if you will be able to use a mainstream lender or if you will need to use a B lender.
What is the difference between and mainstream lender and a B lender
A mainstream lender will allow a mortgage for individuals with a good credit standing at current market rates with a lower down payment required.
If you haven’t rebuilt your credit to acceptable levels for mainstream lenders you can alternatively look at financing from a B lender. A B lender would traditionally have higher interest rates and a higher down payment requirement due to a lower credit score or history. B lenders typically utilize shorter terms such as one- to two-year terms. This way a client you can have an opportunity at the renewal to reapply for a better interest rate if you have kept rebuilding your credit and ensuring all your payments are on time.
Whether you are just applying for bankruptcy or if you have just been discharged, there is never a better time to start working with a mortgage professional to assist in credit rebuilding and getting you into the home you deserve to own.