How Long After Bankruptcy Can I Get a Mortgage in Canada?
If you've recently declared bankruptcy in Canada, you may be wondering how long it will take before you can qualify for a mortgage. While a bankruptcy filing can stay on your credit report for up to 7 years, the good news is that you may be able to secure a mortgage much sooner than that.
The length of time you'll need to wait before applying for a mortgage following bankruptcy will depend on a variety of factors, including your credit score, employment history and down payment.
Some lenders may require you to wait up to two years before applying for a mortgage, while others may be willing to consider your application sooner.
If you have declared bankruptcy in Canada, it is still possible to get a mortgage, but you will need to wait until you have been discharged from bankruptcy. The length of time you need to wait depends on the type of bankruptcy you filed and the lender you approach.
You will need to wait at least two years after being discharged from bankruptcy to be eligible for a mortgage from most AAA lenders. That being said, many Alternative lenders will offer mortgages to Canadians that have only discharged the bankruptcy for one day.
You will need to have improved your credit score and found stable income to qualify for a mortgage after bankruptcy if you want to obtain a mortgage at an AAA bank or Credit Union. This will require you to take steps to rebuild your credit and improve your financial situation before applying for a mortgage.
If you are unable to qualify for a mortgage at an AAA Bank, you may need to provide a larger down payment and pay higher interest rates than someone with a clean credit history. This is because lenders consider you to be a higher-risk borrower after bankruptcy.
It's important to work with a mortgage broker who has experience working with borrowers who have declared bankruptcy. Not only can they help you navigate the process and find the best mortgage options for your situation, they can work with you to put a plan in place to rebuild credit and get prepared for a home purchase in the future.
Be prepared to provide documentation about your bankruptcy, including a copy of your bankruptcy order, list of creditors, and a letter from your trustee confirming that you have been discharged.
Understanding Bankruptcy in Canada
If you are considering filing for bankruptcy in Canada, it is important to understand the process and its implications. Bankruptcy is a legal process that is governed by the Bankruptcy and Insolvency Act (BIA) and is designed to provide relief to individuals who are overwhelmed by debt and cannot pay their bills.
When you file for bankruptcy in Canada, you will work with a licensed insolvency trustee (LIT), who will help you prepare and file the necessary paperwork. Your LIT will also be responsible for administering your bankruptcy estate, which includes any non-exempt assets that you may have.
During your bankruptcy, you will be required to make monthly payments to your LIT, who will distribute the funds to your creditors. The amount of your monthly payments will depend on your income and expenses, as well as the amount of your debt.
How Bankruptcy Impacts Your Credit
Filing for bankruptcy will have a significant impact on your credit score and credit report. It is important to understand how bankruptcy affects your credit and what steps you can take to rebuild your credit after bankruptcy.
One of the most significant impacts of bankruptcy on your credit is the damage it does to your credit score. Your credit score is based on a number of factors, including your payment history, credit utilization, length of credit history, and types of credit accounts.
When you file for bankruptcy, it will lower your credit score by 200 points or more. In addition to the impact on your credit score, bankruptcy can also make it difficult to obtain credit in the future.
Lenders and default mortgage insurers view you as a high-risk borrower and may not be willing to lend to you. Alternative lenders can be options after bankruptcy but they charge higher interest rates and require a larger down payment.
Rebuilding Credit After Bankruptcy
Get a Secured Credit Card
A secured credit card is a type of credit card that requires a security deposit. The deposit acts as collateral, and the credit limit is usually equal to the amount of the deposit.
Using a secured credit card responsibly can help you re-establish your credit. Make sure to pay your balance in full every month and on time.
Re-build Your Credit
Re-establishing your credit after bankruptcy takes time and effort. You can start by paying all your bills on time, including rent, utilities, and other regular expenses.
You can also apply for a small loan or credit card with a low credit limit. Make sure to pay your bills on time and keep your credit utilization low.
Monitor Your Credit Report
It's important to monitor your credit report regularly to make sure there are no errors or inaccuracies. You can get a free credit report once a year from each of the two credit bureaus in Canada, Equifax and TransUnion. Review your credit report carefully and dispute any errors or inaccuracies.
Avoid Applying for Too Much Credit
Applying for too much credit can hurt your credit score. Every time you apply for credit, it creates a hard inquiry on your credit report.
Too many hard inquiries can lower your credit score. Only apply for credit when you need it, and make sure to do your research before applying.
Spire’s Rule of Two
At Spire, we always direct our post-bankruptcy client’s to the “rule of two.” This is the most effective way to build good credit, quickly.
Over the 2 years after your bankruptcy, you want to establish 2 types of credit with a limit of $2000 and maintain utilization of less than 20%.
2 New Types of Credit
Establish 2 new types of credit as soon as your bankruptcy has been discharged. Typically, clients start with a secured credit card (possibly Capital One) and a Canadian Tire Credit Card.
Minimum Credit Limit of $2,000
Make sure that each credit line that you obtain has a limit of $2000. If you aren’t able to obtain a credit limit of $2000, start with $500 and work your way to $2000 over the coming months buy using and paying the cards on time.
Spotless Payment History
Strive for a spotless payment history over two consecutive years. Consistency in making payments can significantly bolster your credit score, painting a picture of you as a reliable borrower.
Credit Utilization Below 20%
Maintain your credit card balance below 20% of the limit. High credit utilization can harm your credit score. Use the card and pay it off each month. Don’t carry high balances month to month. .
Clear Collections and Rectify Reporting Errors
Ensure any outstanding collections, like parking tickets, medical bills or utility bills are fully paid. Rectify any inaccuracies in your credit score reporting. Remember, annual fees linked to your credit cards should always be settled promptly.
Aiming for a 680 Credit Score
Target a minimum credit score of 680. In the Canadian financial landscape, this score puts you in a strong position for financing and sets the stage for the most competitive mortgage rates.
Regular Review of Credit Reports
Before embarking on a mortgage application in Canada, make it a habit to review your Equifax and TransUnion reports. A single mistake could negatively impact your score or deter you from obtaining the best mortgage rates and products.
Errors to Avoid When Applying for a Mortgage After Bankruptcy
1. Applying for a Mortgage Too Soon
One of the biggest mistakes you can make after bankruptcy is applying for an AAA mortgage too soon.
Most AAA lenders require a waiting period of two years after bankruptcy before you can apply for a mortgage. Applying too soon can result in a disappointing decline. If you want to qualify for a mortgage less than two years after discharge, make sure you’re working with a mortgage broker that has access to private and alternative lenders.
2. Applying for the Wrong Type of Mortgage
Different types of mortgages have different eligibility requirements. After bankruptcy, you may need to consider alternative mortgage options, such as a private mortgage.
3. Not Working with a Mortgage Broker
Working with a mortgage broker can help you navigate the complex process of getting a mortgage after bankruptcy. A broker can help you find the right lender and mortgage product, and can also help you improve your chances of getting approved.
For help getting a mortgage after bankruptcy, apply for a mortgage at Spire Mortgage. The mortgage brokers there can help you choose the best mortgage option for your financial situation.
