Home ownership is a dream for many people. It is a common misconception that filing a bankruptcy or a consumer proposal means you will never be a homeowner. It is possible for the dream of home ownership to be a reality after filing for bankruptcy or a consumer proposal. People go through insolvency proceedings for many different reasons but the goal of getting a fresh start and back on track financially is the same for everyone. If part of goals for the future post-bankruptcy includes home ownership, you should start discussing with this with your trustee or insolvency counselor at your counseling session. There are steps that need to be taken but it is possible to buy a house after filing a consumer proposal or bankruptcy.
Check your Credit Report for Mistakes
After you are discharged from bankruptcy or have completed your consumer proposal, you should request a copy of your credit reports. Equifax and Trans Union are the two major credit bureaus. If you discover issues such as a debt you included in your bankruptcy not being reported properly you can request that the mistakes be corrected.
This step is easy. You don’t have to do anything but wait. In order to qualify for a mortgage, you have wait 2 years after you are discharged from bankruptcy or receive your Certificate of Full Performance if you filed a consumer proposal.
Rebuilding Your Credit Towards Home Ownership
In those two years, you need to re-establish your credit. The Canada Mortgage and Housing Corporation (the government agency that insures most mortgages) have a rule that you must have a minimum credit score of 600 to qualify for a mortgage. However, banks have their own policies and most banks want to see a minimum credit score of 620. Typically lenders want to see two pieces of re-established credit. Preferably they would like to see one type of installment credit (like a loan) and one revolving credit (like a credit card).
It is imperative that any credit you get after bankruptcy be paid on time every month without exception. Mortgage lenders will not lend to people who have had delinquency post-discharge.
You will need a down payment to purchase a house. The minimum amount of a down payment is 5%. However, if you only have been discharged for 2 years, lenders will likely want you to have a 10% down payment. The down payment will have to come from your own resources (such as savings or investments). A down payment cannot be borrowed funds or gifted funds.
You may want to investigate investing in RRSP’s to accumulate your down payment and withdrawing them under the Canada Revenue Agency’s Home Buyers Plan. Speak to your bank or an investment advisor to determine if this would be a good option for you.
Consider Mortgage Pre-Approval
When you think you are ready to start looking at houses, contact a mortgage broker or your bank to get pre-approved. The advantage is using a mortgage broker is that they can present your situation to multiple lenders to get you the best possible interest rate and they have access to lenders who have more flexible lending policies when it comes to post-bankruptcy / post-proposal mortgages.
Beyond having a down payment and re-established credit you will need to qualify like everyone else based on your income, length of time at your job, debt ratio and the property you are looking at.
Buying a home after filing for a bankruptcy or consumer proposal is possible if you are committed to making it happen. For most people saving a down payment is the hardest part, but hopefully, you will have learned some tips for saving during your counseling sessions. I encourage people to continue setting aside the money they were paying during their bankruptcy after it is down as savings. It is money you will be used to living without and can help you on the path to realizing your future goals.