Getting a mortgage while having a previous bankruptcy or consumer proposal can be difficult. While some banks won’t even consider giving you a mortgage, some lenders will provide you with a mortgage under certain conditions.
In this blog post, I’ll discuss the difference between a bankruptcy and a consumer proposal and what conditions you’ll have to comply with when you get approved for a mortgage after bankruptcy.
Bankruptcy versus consumer proposal.
If you’re currently in the stage of needing to file for bankruptcy and are hoping to one day get a mortgage, you should know the difference between that and a consumer proposal. The main difference is that a consumer proposal allows you to keep more of your assets. It also has less of an effect on your credit score and will stay on your record for 3 years instead of up to 6 years for a bankruptcy.
That being said, the debts that are paid out via each solution can still stay on your credit and be reported as being paid out either through a consumer proposal or bankruptcy. The consumer proposal is still a better alternative, as you can retain a credit card or credit-building asset to help jump start your credit rebuild process.
While they may technically be different, the banks see them as the same. Whether you get a bankruptcy or a consumer proposal, the banks will be more cautious lending to you.
Getting a mortgage post-bankruptcy.
The first thing I want to say is that getting a mortgage post-bankruptcy is doable. It won’t be as easy as a normal mortgage, but it is a possible situation to be in.
So, if you’ve had to file bankruptcy and are keen to still buy a home one day, I want you to know, it can still happen. However, I need to know about it right away. If you’re working with a mortgage broker, like myself, it’s critical that you share with me if you’ve had a bankruptcy in the past. Even if it’s off your record, please give me a heads up as it’s important to know your financial history when applying for a mortgage.
In most cases, conventional lenders like TD will want you to have trade lines established for two years each after your bankruptcy discharge. That is two years after you’ve been discharged, not from the time you declared bankruptcy.
One trade line should be a loan and one needs to be a credit card for $2,000 or more that you have properly managed with no late payments.
There are other conditions that banks like to see in order to provide you with a mortgage two years out of bankruptcy. These include:
- No late payments after discharge
- No collections after discharge
- Minimum 5% down payment, but more is better
- Must be your first bankruptcy
Building up your credit.
After a bankruptcy or consumer proposal, it’s important to start rebuilding your credit. Especially if you’re looking to buy a property!
There won’t be a yellow brick road waiting for you once your payments are finished on your bankruptcy. But, there are companies out there that will provide you with credit to help you rebuild your score.
If you’re not aware of these companies, you can reach out to me. Your credit score is your most important piece of documentation when you’re hoping to get approved for a loan with a mortgage lender. I would be happy to point you in the right direction to make sure your credit gets built the right way.
Start the home buying process today.
If you’ve been working on building up your credit since your bankruptcy and are in a position to purchase a home, reach out to me today! I’ve helped a number of people who have filed bankruptcies and consumer proposals in the past, purchase their dream homes. Like I said previously, it’s just important that I know of any past claims before I start searching for lenders who will lend to you!
If you’ve just filed for bankruptcy in Canada and have questions about buying a home in the future, give me a call. I can provide advice on what you’ll need to do in the future to ensure that it’s possible for you to own a home again.