Filing bankruptcy can give you a fresh start if you are struggling financially. However, this will have a negative impact on your credit score and make it more difficult to get approved for a mortgage because lenders will view you as a risky borrower. Don’t worry, getting a mortgage after bankruptcy can be done with proper timing and careful planning.
So if you’re wondering how long after filing bankruptcy you’ll have to wait before you can apply for a mortgage and buy a home, this article will answer that question and more.
Can you get a mortgage after filing for bankruptcy in Canada?
Bankruptcy will remain on your credit report for 6-7 years, depending on the province, and will make it harder for you to get approved for a mortgage or any other loan in Canada. The good news is that it is possible to get a mortgage even after filing for bankruptcy.
Bankruptcy will make you seen as a higher-risk borrower by lenders, and you’ll likely have to pay a higher interest rate if you’re approved for a conventional mortgage. However, this does not automatically mean that you do not qualify for financing for your dream home. It’s important to understand the waiting period and take steps to increase your chances of getting approved while you wait.
When can you get a traditional mortgage loan after declaring bankruptcy?
You’ll have to wait at least 2 years after your bankruptcy filing date before you are eligible to receive a conventional mortgage from a traditional lender or a CMHC-insured mortgage in Canada. In the case of a CMHC mortgage, repayment of the loan within 2 years after bankruptcy is a requirement set by the government-backed Canada Mortgage and Housing Corporation (CMHC). With a conventional mortgage through a traditional lender such as one of the large Canadian banks, there is no hard and fast rule, but 2 years is the industry standard.
Some private lenders may be willing to give you a mortgage sooner, provided you can prove you can make the monthly payments. But these subprime mortgages come with a lot of strings attached and are usually very expensive, with interest rates in the double digits. Also be prepared to make a larger down payment than the minimum 5% required for a CMHC mortgage or the 20% required for a conventional mortgage.
So while you may be able to qualify for a mortgage loan sooner than two years after filing for bankruptcy, it’s not always a good idea. You’ll likely pay a higher interest rate and have a larger down payment. Unless you absolutely need to buy a home before two years, it’s better to wait until your credit score improves to get better terms.
What happens to your mortgage if you file for bankruptcy?
If you’re having trouble paying off your debt and file for bankruptcy, the first thing you need to know is that your mortgage lender can still foreclose on your home. This is because bankruptcy only covers unsecured debts, such as credit cards and personal loans. Mortgage loans are considered secured debts, meaning they are secured by collateral, in this case your home.
This means you must continue to pay your mortgage to stay in your home. If you miss payments, your lender may begin the foreclosure process.
Can you keep your house after bankruptcy?
Declaring bankruptcy does not mean losing your home. This is the case if you don’t have any equity in your home and your mortgage payments are reasonable. This means there will be little cash left after you sell your home and pay off your mortgage.
On the other hand, if you have a lot of equity in your home, you will need to sell it to free up equity and pay off some of your debts with what’s left after paying off your mortgage. In other cases, you may need to refinance your home and use your home equity to consolidate your debts.
The good news is that some provinces offer bankruptcy exemptions for primary homes up to a certain limit. For example, up to $40,000 of equity in a primary home is excluded from bankruptcy in Alberta. Your License Insolvency Trustee will work with you to explore your options to help you keep your home if possible.
Tips for applying for a mortgage after bankruptcy
There are a few things you can do to increase your chances of getting approved for a mortgage after bankruptcy in Canada:
1. Work to rebuild your credit score
This should be the first thing you do after filing for bankruptcy. A good starting point is to get a secured credit card or one of the best credit cards for rebuilding credit in Canada. Also, make all payments on time and, if necessary, consider becoming an authorized user on someone else’s credit card.
2. Save a larger down payment
As mentioned above, you will likely need to make a larger down payment if you want to get a mortgage loan sooner than two years after filing for bankruptcy. Even if you decide to wait, a higher down payment could increase your chances of getting approved for a mortgage with better terms. So start saving!
3. Shop around for the right lender
Not all lenders have the same requirements when it comes to approving borrowers who have previously filed for bankruptcy. Some may be more lenient than others, so it’s important to shop around for a mortgage lender and compare your options.
4. Get a cosigner
If you can’t qualify for a mortgage on your own, you may be able to get approved if you have a co-signer on the mortgage who meets the lender’s requirements, such as a spouse or partner. Just remember that if you default on the loan, your cosigner will be on the hook for the balance.
5. Wait
It may be best to wait at least 2 years after filing for bankruptcy before applying for a mortgage. This will give you time to rebuild your credit score and save for a larger down payment. You’ll probably get better terms when you finally apply.
Final thoughts
If you are considering filing for bankruptcy in Canada, it is important to understand how it will affect your ability to get a mortgage loan.
While you may not be able to get a conventional mortgage until 2 years after filing for bankruptcy, you can use the waiting period to improve your financial situation and show lenders that you can repay your mortgage. The tips listed above are a great starting point.
And if you’re just considering filing for bankruptcy, it’s important to talk to a licensed bankruptcy trustee to explore your options and understand how it will impact your ability to get a mortgage loan in the future. Before filing bankruptcy or a consumer proposal, it is important to learn about other debt relief programs available.
Obtaining a mortgage after bankruptcy – frequently asked questions
Can you get a mortgage after bankruptcy in Canada?
Yes, you can get a mortgage after filing bankruptcy in Canada, but this is subject to several conditions. For example, you will have to wait at least two years from your bankruptcy filing date before you are eligible for a CMHC-insured mortgage loan. Most traditional lenders will also require a 2-year bond waiver, but not all.
How soon after declaring bankruptcy can I apply for a mortgage loan?
This depends on the type of mortgage you are applying for. For a CMHC High Rate Mortgage Loan, you will need to wait at least 2 years from your bankruptcy discharge date. If you can’t or don’t want to wait, you can get a subprime mortgage from private lenders, but these loans are more expensive because interest rates are usually much higher.
When can I get a CMHC mortgage after bankruptcy?
If you want to get a CMHC insured mortgage loan, you will need to wait at least 2 years from your bankruptcy discharge date. You’ll also need a credit score of at least 600 to qualify for a mortgage and get the best terms.
What is the minimum creditworthiness for a mortgage loan after bankruptcy?
The minimum credit score you’ll need to qualify for a CMHC-insured mortgage after bankruptcy is 600. It can be significantly lower if you choose a non-traditional mortgage from a B lender. However, your chances of getting approved and getting the best terms will be much higher if your credit score is 650 or higher.
What happens to your mortgage if you file for bankruptcy?
If you file for bankruptcy, your mortgage debt will not be discharged. This means you are still responsible for making your monthly payments even if you have filed for bankruptcy. If you cannot or do not make payments, the lender can foreclose on your home.
Can I keep my house after bankruptcy?
You may be able to keep your home depending on several factors, such as how much equity you have in it, your mortgage payment, and your province. If the equity is significant and higher than the bankruptcy exemption in your province, the home can be sold and the equity used to pay off debts. In other cases, you may need to refinance your mortgage and use your home equity to consolidate your debts.
