8 Steps to Get a Mortgage After Bankruptcy or Consumer Proposal
The 8 Step Post-Bankruptcy Steps
Rebuilding your credit after bankruptcy or consumer proposal can seem like a daunting task.
Here are 8 specific steps you can take to rebuild your credit, improve your chances of getting approved for a mortgage and regain financial stability.
1 – Bankruptcy discharged for 2 years
Most lenders require a waiting period of at least two years after your bankruptcy has been discharged before they will consider you for a mortgage.
During this time it is important to focus on rebuilding your credit by making on-time payments, keeping your credit utilization low and avoiding too much new consumer debt.
2 – Reestablish at least two active credit trade lines
That being said, it is important to reestablish your credit by opening at least two active credit trade lines, such as a secured credit card or a small personal loan.
This will help show lenders that you can handle credit responsibly and start improving your credit score.
3 – Make on-time payments and avoid missed payments
It is crucial to make all of your payments on time and avoid missing any payments.
Late or missed payments can have a significant negative impact on your credit score, demonstrate credit irresponsibility and make it harder to get approved for a mortgage.
4 – Keep your credit utilization low
Credit utilization is the amount of credit you are using compared to the total amount of credit you have available.
Keeping your credit utilization low, ideally under 30%, can help improve your credit score and show lenders that you are responsible with credit.
5 – Obtain a secured credit card or loan
A secured credit card or loan will require you to put down a deposit or collateral to secure the credit.
Another option is to become an authorized user on someone else’s credit card, which can help you build credit without taking on any new debt.
6 – Avoid too much new consumer debt
Taking on new debt, such as a car loan or another credit card, can negatively impact your credit score and make it harder to get approved for a mortgage.
It is best to avoid taking on too much new consumer debt because each credit application negatively affects your credit score and each new consumer debt increases your Total Debt Servicing Ratio (TDS) making it harder to qualify for a mortgage.
7 – Save for a down payment and closing costs
Saving for a down payment and closing costs as well as establishing a 3-4 month emergency savings fund shows lenders that you are financially responsible and can help improve your chances of getting approved for a mortgage. It also helps your peace of mind knowing that you have the flexibility to purchase and support your family in case of income disruption.
8 – Avoid double bankruptcy and consumer proposal
Use this guide as a way to avoid getting into a situation where you may need to file for bankruptcy or consumer proposal again.
A double bankruptcy or CP produces further problems when applying for a mortgage or rebuilding your already bruised credit.
Conclusions and Further Thoughts
In conclusion, rebuilding your credit after bankruptcy or consumer proposal takes time and effort, but it is necessary if you want to qualify for a mortgage.
By understanding your bankruptcy discharge period, reestablishing credit trade lines, making on-time payments, keeping your credit utilization low, avoiding new debt, and saving for a down payment and closing costs, you can improve your credit score and increase your chances of getting approved for a mortgage.
Sincerely,
Michael
PS – One of my hobbies is blogging about mortgages, debt and government policy. During the day I’m a MORTGAGE BROKER in Kelowna, BC!
Check out the Huber Mortgage Home Buyers Guide HERE
