Monday, July 11, 2011

10 Tips on Obtaining a Mortgage After Bankruptcy

When Bad Things Happen to Good People: 10 Tips on Obtaining a Mortgage After Bankruptcy

Many Canadians find themselves bogged down with a bad credit rating for the wrong reason – illness, losing a job, or simply not understanding consumer credit.  Sometimes bad financial situations happen to good people and bankruptcy is the only way out.  But it’s not all doom and gloom – there are a number of strategies for putting one’s credit back on track and getting approved for a mortgage, even after bankruptcy. 
“Going from one financial institution to the next, only to be declined again and again can be very frustrating,” says Gary Siegle, regional business manager in Calgary with Invis, Canada’s largest mortgage brokerage firm.  “This is where an experienced mortgage consultant on your side can make all the difference.”
Here are some points to consider:
  1. Locating the right lender: Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report, however so-called non-conforming lenders may consider doing so, provided the borrower can demonstrate that he or she has the income to support the payments and is now a good credit risk. 
  2. Length of time since bankruptcy discharge: Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage – typically two years along with proof of re-established credit.  Some lenders may consider applicants with a more recent bankruptcy – a mortgage consultant can advise on the regulations of various lenders.  
  3. Reasons for bankruptcy: If a bankruptcy was due to factors beyond your control, this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt, which can affect the terms of an applicant’s mortgage approval.   
  4. Size of down payment: With a past bankruptcy, most lenders will consider a minimum 10% down payment consisting of one’s own funds, not borrowed or from a gift.  On a case by case basis, a down payment of 5% or less may be permitted.   
  5. The type of property: Some lenders will only lend on houses or row townhouses.  Very few will consider apartments or stacked townhouses, which may involve stringent criteria to qualify.
  6. Credit report: A detailed history of how consistently one’s financial obligations are met, a credit report provides a picture of financial health based on past behaviour.  You can obtain a copy of your credit report free from Equifax (1-800-465-7166) and Trans Union (1-800-663-9980).  A link to the Equifax online form is available at
  7. 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. Rate considerations: 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, minimum beacon scores, saved down payment, good debt servicing ratios, and a long term history of job stability.
  9. Re-established 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. Don’t do it alone:  Explore the benefits offered by mortgage brokers: For those with bad credit and/or bankruptcy, a mortgage consultant can coach you on how to improve your credit score over time.  While you work on bettering your score, a mortgage consultant can advise on how to get a mortgage despite bruised credit. Invis ( mortgage consultants work with prospective homeowners across Canada to provide valuable advice before and during the home buying process. You can speak to an Invis mortgage consultant directly by calling 1-866-84-INVIS. 


  1. Actually i was looking for this type of information over the internet and finally got here. Thanks for giving these helpful tips..

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  2. This is really a great tips given in here and a good information to shared with. The reason for the bankruptcy was an acceptable event rather that mismanagement. And it must have been for a significant amount. Thanks for this input.

  3. Great article, thanks for sharing! I've heard lots of horror stories of bankruptcies in Canada, this seems like reasonable advice to overcome that though.

  4. Thank you for sharing these tips, I found them very helpful for bankruptcies in Canada. Question on tip five my friend lives in an apartment building and I think is getting close to filing for bankruptcy, any tips?

    1. Sorry Tom,
      As a Mortgage broker, we are not allowed to give any advice on bankruptcies.

  5. Thanks for sharing! I have been researching bankruptcies in Canada trying to figure out ways to avoid having to file bankruptcy, and I found this very helpful!

  6. This type of article is just what I was looking for! Thank you so much for your help. Bankruptcy has been a real stress on my mind lately and you helped me feel better about the process.

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  13. I never realized that you could get a mortgage with such a low down payment after declaring bankruptcy. Is this the case for most people or are there some extenuating circumstances? I'm just trying to plan our after-bankruptcy life and it seems complicated so far. Thanks for making it a bit simpler for us.

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