There are three major steps to improve your chances of getting a mortgage during the period that your bankruptcy is still noted on your credit file.
1. Follow the Tips for Rebuilding Credit after Bankruptcy. Simply paying your bills on time will demonstrate that you are managing your money and are living within your means.
2. Raise your income. Earning a stable income at a good wage makes you more desirable to lenders. The longer you have been with your employer, the better, as far as a mortgage lender is concerned.
3. Save 25% of your down payment. During the period that your bankruptcy is noted on your credit file, you will need to make a minimum down payment of 25% of the mortgage. The best way to do this is through RRSPs, because the typical RRSP contributor generates a 30% or more return in the form of a tax rebate. There isn’t another safe investment scheme that offers these kinds of returns!
In Canada, the federal government allows you to withdraw up to $25,000 out of your RRSPs (and remember that your RRSPs are now exempt assets during bankruptcy) if you are a first time home buyer. Your partner can also contribute $25,000 from his or her RRSPs, which will get you well on your way to the necessary down payment in many housing markets.
“Don’t let your past decide your future.” Frederick Bliss
Many people think that they will not be able to get credit after bankruptcy. This is not true; you will be able to borrow money after bankruptcy. It will just be more difficult than if you had a good credit rating. Your credit rating can actually get better following a bankruptcy, providing you follow a few practical steps. Once your bankruptcy is discharged, you can pay bills on time and build up cash reserves and take other actions that will rebuild your credit score.
You may even be thinking that you never want to go into debt again because of the stress that led up to the bankruptcy. Going into debt is a different kettle of fish than having access to credit. Most people require a mortgage to buy a home. If you want a newer car, you will probably need to use a loan or lease to afford it. If you need to book a flight or make a reservation, it is difficult to do so without the use of a credit card. Debt becomes a problem when you start using credit to make purchases that don’t fit your income level. But not having access to credit can make living in the modern world difficult.
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