Buying a Home After Bankruptcy: What You Need to Know

Every year, thousands of Canadians file for bankruptcy after accumulating so much debt that they cannot keep their heads above water, particularly in a rising interest rate environment.

New data from the Office of the Superintendent of Bankruptcy show that total insolvency filings across businesses and consumers advanced 13.5 percent month-over-month and nearly 34 percent year-over-year. Banks, which include mortgage lenders, are starting to take notice.

But for the issue of homeownership, does bankruptcy eliminate the chance of purchasing a residential property, be it in a major urban centre or a rural community?

Indeed, Canadians who have filed for bankruptcy might be wondering if this will remove the opportunity to ever buy a home again.

But while bankruptcy does not prevent you from making the most significant purchasing decision of your life, there are many challenges and conditions in the home-buying process. Suffice it to say; it is not easy.

 What You Need to Know About Buying a Home After Bankruptcy

The first thing that bankrupt homebuyers need to realize is that they will need to wait until their bankruptcy is discharged before they can apply for a mortgage. This is in addition to rebuilding your credit history. Moreover, the length of time you will need to wait to buy a home will depend on the type of mortgage you are considering applying for and what lender you choose.

Remember, there are two types of mortgages: conventional and mortgages insured by the Canada Mortgage and Housing Corporation (CMHC) or a similar mortgage insurer.

The former is not supported by a mortgage insurer. It can be tougher to get since you must possess an exceptional credit score and contribute a down payment of at least 20 percent of the purchase price. Plus, for bankrupt borrowers, the typical lender will require those applicants to be discharged from bankruptcy for at least two years before considering the application.

The latter, which an insurer like CMHC or Genworth guarantees, will also require a two-year window since being discharged from bankruptcy and one year of re-established credit. This is in addition to paying an insurance premium that will vary based on the loan amount and size of your down payment.

So, with the basics out of the way, what could you do to boost your chances of being approved for a mortgage following your bankruptcy? Here are several tips you can employ to increase the odds:

• Apply for a secured credit card and pay the entire balance every month.
• Submit applications for other forms of credit, be it a line of credit or automobile loan, and complete your monthly payments in full and on time.
• Scan your credit report and determine if there are any mistakes or inaccuracies, and report them to the credit bureau.
• Explore the mortgage market and find a lender that is best for you and tailored to your financial needs (terms, conditions, and rates). Many lenders are willing to work with homebuyers who have filed for bankruptcy.
• Hire a mortgage broker who might be able to connect you with the right mortgage solution.
• Save up for a larger down payment that is higher than the bare minimum.

Buying a home after bankruptcy in Canada is not impossible, but it requires patience, planning, and due diligence. Indeed, by understanding the Canadian real estate market, working with a real estate agent, and enhancing your down payment, you can bolster your chances of obtaining the Canadian dream of home ownership.

Bracing for Loan Defaults?

A new report suggests that Canada’s big banks are bracing for a potential wave of loan defaults, as many of these financial institutions have reported lower profits, tighter lending practices, and reduced outlooks.

The cause? Higher interest rates have impacted borrowers, whether they are holding a mortgage or using a credit card.

“The high-rate environment could have a direct impact on our customers through higher borrowing (e.g., mortgage rates) and debt servicing costs,” the Bank of Montreal stated in its first-quarter report.

Could a credit crunch weigh on Canada’s housing market? The collapse of Silicon Valley Bank and Signature Bank south of the border might not have only spooked the U.S. banking system, but it might have effects on the financial sector north of the border, too.