Dernière mise à jour le January 7th, 2021
Whether it is because of a costly separation, a job loss or a difficult period, all kinds of reasons can cause financial problems that lead to a consumer proposal or bankruptcy. Everyone knows that after such a situation, it is much harder to get credit.
Rest assured, it is possible to buy a home after a consumer proposal or bankruptcy. Obviously, you will have to show that your financial situation has recovered since the proposal. However, if you plan ahead and do what you have to, there is a chance that you too will become a homeowner! This article will explain exactly what to do to restore your credit so that your loan is approved.
Restore your credit
It is essential to restore your credit and get started as quickly as possible after your discharge. Usually, it takes 2 years of credit restoration before you can buy a home. However, some institutions may offer financing after only 1 year of being discharged, if the file has been properly restored and the down payment is large enough, ideally a 20% down payment. In fact, if you have at least 25% as a down payment to invest in the next property, it might be possible to buy even faster.
For example, I have clients who have been declined by their bank because their discharge from bankruptcy was less than 2 years old. Since the clients had a large down payment and their credit had been properly repaired, I was able to find a lender for them who agreed to finance their home purchase.
How to rebuild your credit after bankruptcy?
It is important to know that you will have to rebuild your credit from 2 different new sources. When I speak of credit sources, I mean credit cards, line of credit, personal loan … Ideally, there must be at least one of the 2 sources of credit that is a term loan (a loan with regular payment installments). When I mention new sources of credit, I mean that a payment for a vehicle that existed during bankruptcy does not count as one of the two sources of credit.
Obviously, after a consumer proposal or bankruptcy, it is more difficult to obtain credit. This is an issue since to rebuild your credit, you must first obtain credit.
Where should I start?
The first step is to obtain a guaranteed approval credit card. To find one, I suggest you do the following Google search: “guaranteed approval credit card”, you can also click here. There is an annual fee of approximately $60 to get this card. In some cases, a security deposit will also be required. However, approval for this card is guaranteed. It is therefore an excellent starting point to restore your credit. I invite you to read this article which shows how to manage your credit in order to improve your score as quickly as possible.
Having a credit card is good, but that’s not all. It is better to also have a loan with regular payments over a period of at least 12 months. The best advice I can give you for getting a term loan is to go see your bank (ideally another bank than the one where you filed your proposal or went bankrupt). Ask for a $1,000 RRSP loan that you will repay monthly over a period of one year. This way, you increase your chances that the bank will agree to lend you the money despite your file since you are taking two products with them (the loan and the investment). You will help restore your credit, plus you will have $1,000 more to put toward a down payment with the HBP if this is your first purchase. It is important to explain your situation to your banker. Do not try to hide from them that you have a consumer proposal or bankruptcy on file. Sooner or later they will find out. Some banks have very strict policies on tainted records. The banker should know their bank’s policies and know prior to running a credit check whether you have a chance of being accepted or not. If you do not have a chance then it is useless for him to do a credit check, it will negatively impact your credit report for nothing.
Know your credit score
Trying to improve your credit score is fine, but since most people don’t really look at their credit report, it often feels abstract. Personally, I like to have goals and figures to know that my efforts have paid off. So in my opinion, knowing your credit score can help improve your credit. In addition, it ensures that there are no recent errors or strange requests. It is possible to view your credit by calling Equifax, but this report is not very detailed. It is also possible to pay for services such as Equifax to access your credit report. There are even services that will allow you to view your credit report free of charge and get a monthly update. Personally, the one I use and recommend using is Borrowell #PromotionalLink. It’s completely free and you have access to your credit report! However, currently the site is only in English. In addition, I think you have to remain a subscriber to their newsletter. So, expect to receive about one or two emails a week from them, which you don’t have to check. In short, I used the site for a little over a year and I like very much!
Important
What I do not recommend that you do to have an installment loan is to go see a car dealership that accepts all files. While it’s true that paying for the car will help restore your credit, the payments will be way too high because of the sky-high interest rates they charge! This will needlessly increase your debt rate, which is a very important element when applying for a mortgage loan. In addition, with large monthly payments, it is more difficult to save for the down payment, which is another key element when applying for a mortgage. Small express type loans of $500 to $1,000 should also be avoided since they do not appear on the credit bureau and are very expensive.
The down payment for mortgage after bankruptcy
It is important to have a bigger down payment, at least 10%. In certain cases, where the client impeccably restored his file and where the financial situation would have become irreproachable, it is possible to make a purchase with a down payment of as little as 5%. This is done on a case-by-case basis and depends on the file.
Buying a house with a co-borrower
It is not absolutely necessary to have a co-borrower. However, having a financially strong co-borrower can make things easier. If your partner is in a good financial position and has good credit, it might be a good idea to apply with them. However, even with a co-borrower, your credit will still need to be restored.
What interest rate should I expect to pay?
Once again, this is on a case by case basis. However, the better your credit is restored and the larger your down payment, the more lenders will be interested in your file. Thus, your rate will be better. If your credit is properly restored, it is quite possible that you will have access to the best rates available on the market. On the other hand, it is obvious that when we are looking at a file with an ex-bankruptcy, the priority is the acceptance of the loan.
Consult a mortgage broker
The mortgage broker is your best ally in obtaining a mortgage in this type of situation. First, we have access to several lenders with different standards when it comes to ex-bankruptcies. We can advise you on how to improve your credit, where to make your requests … I myself am a mortgage broker, so I invite you to contact me if you have any questions at 438-688-3017. You can also email me at bruno.gag.st@gmail.com