Many Canadians find themselves bogged down with a poor credit rating for reasons completely beyond their control – loss of employment, sickness or a misunderstanding of how consumer credit works. Often times, tough financial situations befall responsible people, and a ‘B’ mortgage might be the only way to keep their home. But bad credit is certainly not the end for all home owners – there exist some strategies for getting your credit back on track and to get approved for a mortgage after a past discharged bankruptcy.
Heading from lender to lender, only to be declined for a loan can be a very discouraging process – here are ten tips in order to help get your credit back in good shape::
1. Finding the right lender – the first time – Many mortgage lenders will immediately decline a borrower if a bankruptcy shows up on their credit report; however, so-called ‘B’ lending institutions may consider lending to such a borrower – provided the applicant can demonstrate that he or she has sufficient income to carry the mortgage and that they are now on their way to shaping up their credit.
2 . How long has it been since bankruptcy discharge? – Different lending institutions have different requirements around how much time will need to have passed before they will lend to someone with a bankruptcy. This time period is typically two years; under the assumption that the applicants credit has been re-established and is in better standing. Other lenders may consider applicants with a bankruptcy – a qualified Mortgage Expert will be able to advise you of your options in such a scenario.
3. Why the bankruptcy? – The story matters – if a previous bankruptcy was due to circumstances beyond your control – this is easier to accept for a lender than a bankruptcy that was caused by poor financial choices.
4. How big is your down payment? – With a past bankruptcy, the size of your down payment can significantly help your case for a mortgage. The larger your down payment, the less risk there is for a lender to provide a mortgage. A larger down payment also shows that the borrower has shaped up, and shows the capacity to save their money.
5. What kind of property? – Some lending institutions may only lend on detached homes or semi-detached homes. Mortgages on stacked-townhomes or condominiums may have tougher conditions asked of the borrower.
6. What is your Credit history? – A detailed history of how often you are meeting your financial obligations is a great indication of your financial health and your behaviour when it comes to managing finances.
7. What is your 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 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 which can be negotiated. Some lenders have minimum credit score requirements for those with a bankruptcy.
8. What are your interest rate expectations? – 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, healthy beacon scores, saved down payment, good debt servicing ratios, and a long term history of job stability.
9. Have you re-established your credit? – Re-established credit shows the lender that a prospective borrower has new credit and has managed it well since bankruptcy. Typically, re-established credit should involve a recent record of on-time payments on major bank or 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. Do you have a Mortgage Expert on your side? – For those with bad credit and/or bankruptcy, a mortgage agent can coach you on how to improve your credit score over time.
Remember, even when times look tough, there is always help available to rebuild your credit score. While you work on bettering your score, a mortgage agent can get you on the right track. Fill out the form above and speak to a MonsterMortgage.ca Mortgage Expert today!BACK TO BLOG FEED