Mortgage After Bankruptcy
To obtain a mortgage after bankruptcy in Ontario there are 3 options. Mortgages will generally fall under one of three lender categories, traditional lender, subprime lender and private lender. Which lender you will need will depend on how long you have been discharged from bankruptcy, whether or not you have re-established credit and how much equity or down payment is available.
Here is a comparison between a traditional lender, a subprime lender and a private lender:
|Minimum Time After Bankruptcy Discharge|
|Traditional||95%||44%||Minimum 24 months|
|Subprime||85%||50%||Minimum 3 to 12 months|
LTV – Loan To Value ratio. The amount being borrowed versus the value of the property. A $190,000 mortgage on a $200,000 property would produce a 95% LTV ratio.
TDS – Total Debt to Service ratio. The amount of debt being serviced as a percent compared to the total income.
A traditional insured mortgage. Any non private mortgage in Canada with less then 20% down must be insured. To obtain mortgage insurance through CMHC you will require at least 2 years of discharge from bankruptcy and at least 1 year of re-established credit on two credit items (credit card, loan, etc.). Genworth insurance requires 2 years bankruptcy discharge and 18 months of re-established credit.
A subprime mortgage. A subprime mortgage is a mortgage that falls just outside of CMHC insured lender guidelines. These lenders assist borrowers who are not bad off enough for a private mortgage but will not qualify through a traditional lender.
A private mortgage. Most private mortgages will require 15% down and have an annual interest rate of between 12%-15%. Usually a borrower can obtain a first mortgage from a traditional lender up to a specified percentage (at a much lower interest rate) and a private mortgage can be used to top up what is required to finance the home.
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Re-establishing Your Credit After Bankruptcy
The biggest obsticle in obtaining a mortgage after bakruptcy is obtaining the credit required. To assist in getting a mortgage after bankruptcy I would highly recommend obtaining two secured credit cards. A secured credit card is just like a regular credit card, however for every $1 you put down as a deposit, you will get $1 in credit. There is virtually no risk to the issuer so you are almost guaranteed to be approved. This will help to build that re-established credit that will be required when it comes time to applying for a mortgage.
Here are a couple of companies that issue secured credit cards.
Capital One – minimum $75-$300 deposit required
Peoples Trust – minimum $500 deposit required