How to Buy a Home After Bankruptcy
Mortgage lenders have different ways in which they treat bankruptcies. Most banks and trust companies that offer very good mortgage rates, often called “A” Lenders, require very good credit. After a bankruptcy, most of these lenders will require 2 years from the time you were discharged from bankruptcy before you can get a mortgage from them. They will also want to see re-established credit, which means you will have to have at least two open credit accounts that have been reporting for approximately 2 years. These credit accounts could be a car loan or RRSP loan, and a small credit card that were opened immediately after discharge or payoff.
Home buying after bankruptcy may seem impossible but don’t lose hope! There are many mortgage lenders in Alberta that will still help you buy a home after bankruptcy, and even one day after you are discharged, but the key is to have a down payment.
How Home Buying After a Bankruptcy Works
How exactly does buying a home after bankruptcy work then? Well, let’s take a look at Shawn and Mary. They got discharged from their bankruptcy one month ago and they also recently inherited $150,000 from the death of a parent. They want to know if they can go ahead and buy a home. With this amount of a down payment, it’s very likely that Shawn and Mary can buy a home.
Let’s say they wanted to spend $400,000 on a house and with their down payment of $150,000 that means they need a mortgage of $250,000 to successfully purchase it. With an alternative lender, the interest rates would be around 5% instead of the 2.6% offered by banks. At a 5% interest rate and amortized over 30 years, the mortgage payment is approximately $1,340. Most of that payment of is interest with only $305 being principle.
Have an Exit Strategy in Mind
The key point to remember is to always plan for the long term with an exit strategy. This alternative mortgage that Shawn and Mary chose to take is just a short term band aid. When taking a mortgage like this mortgage brokers help you put a plan in place to get back into an “A” lender mortgage. In Shawn and Mary’s case, they could take a 3 year term on the mortgage we mentioned above, which gives them lots of time to get the two years of re-established credit required by the banks. Assuming they have fixed up their credit, we can get them a new mortgage with one of the “A” mortgage lenders.
Home buying after bankruptcy doesn’t have to be a dream. With our expertise and knowledge as bad credit mortgage brokers in Alberta, we can help you come up with a plan to purchase a home and help you get back on track. Contact us today to talk to one of our mortgage brokers and make buying a home after bankruptcy a reality.
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