By Alisa Aragon-Lloyd, as seen on “New Condo and Guide” magazine, November 27th 2021.
Many Canadians find themselves bogged down with a bad credit rating for the wrong reason – illness, losing a job, or simply not understanding consumer credit. Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But it’s not all doom and gloom. If this has happened to you, there are a number of strategies to put your credit back on track and to get approved for a mortgage, even after bankruptcy.
This is where an experienced mortgage expert can make all the difference.
HERE ARE SOME POINTS TO CONSIDER:
1. Locating the right lender: Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report, however, some lenders on the B-side (sub-prime/alternative lenders) will consider doing so, provided the borrower can demonstrate that he or she has the income to support the payments and is now a lower credit risk.
2. Length of time since bankruptcy discharge: Different lenders have different criteria regarding the length of time after a bankruptcy that they will grant a mortgage – typically two years along with proof of re-established credit. Some lenders will consider applicants with a more recent bankruptcy as long as the bankruptcy has been discharged.
3. Reasons for bankruptcy: If a bankruptcy was due to factors beyond your control, this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt, which can affect the terms of an applicant’s mortgage approval.
4. Size of down payment: With a past bankruptcy, most lenders will consider at least a minimum 20 percent down payment consisting of 10 percent of the down payment coming from one’s own funds.
5. The type of property: Lenders look at properties located in urban centres and that are highly marketable in desirable neighbourhoods and in good condition.
6. Credit report: A credit report provides a picture of your financial health based on past behaviour and is a detailed history of how consistently one’s financial obligations are met. You can obtain a copy of your credit report for free from Equifax at www. equifax.ca and Trans Union at www.transunion.ca.
7. Credit score: A credit score is an objective summary that translates personal information from a credit report and other sources into a three-digit number representing your overall credit worthiness. A borrower’s credit score may determine the rate of the mortgage — the higher one’s credit score, the better the rate that can be negotiated. Some lenders have minimum credit score requirements for those with a previous bankruptcy.
8. Rate considerations: Most lenders charge a higher interest rate and even some extra fees to those with a bankruptcy. A lender may grant a better rate if certain lending criteria have been met, such as: two years since bankruptcy discharge, good re-established credit, minimum beacon scores, saved down payment, good debt servicing ratios, and a long-term history of job stability.
9. Re-established credit: Re- established credit shows the lender that a prospective borrower has new credit and has managed it well since the bankruptcy. Typically, re-established credit should involve a recent record of on-time payments on credit cards. Those re-building their credit need to be aware that a missed payment at this stage could be mentioned on one’s credit report for the next six years and could be grounds for some lenders to decline a mortgage application.
10. Don’t do it alone — explore the benefits offered by a mortgage expert: For those with bad credit and/or bankruptcy, a mortgage expert can coach you on how to improve your credit score over time. While you work on bettering your score, they can advise you on how to get a mortgage despite bruised credit. They provide valuable advice before and during the home buying process.
As always, if you have any questions or need assistance, please give me a call at 778.893.0525 or send me an email alisa@financingpros.ca.
Thank you for your business and referrals, they are always much appreciated.
With gratitude,
Alisa