How to Qualify for a Mortgage After Bankruptcy or Foreclosure in Canada

Nov 26

Written By Georgia .

1. Understand the Waiting Periods

Bankruptcy: Typically, you can apply for a mortgage 2 to 3 years after discharge, though this depends on your financial recovery and the lender's requirements.
Foreclosure: After foreclosure, you usually need to wait 3 to 5 years before applying for a mortgage. Some lenders may consider extenuating circumstances.

2. Rebuild Your Credit Score

Pay bills on time and work on paying down existing debt.
Review your credit report regularly to ensure there are no errors.
Aim for a credit score of at least 600-650 for most lenders, though some may accept lower scores with higher down payments.

3. Save for a Larger Down Payment

A down payment of at least 20% may be required, especially if your credit score is lower. This reduces risk for lenders.
A larger down payment may also help you avoid mortgage default insurance.

4. Demonstrate Stable Income

Lenders want to see a reliable source of income. Stay employed in the same job for at least 6 months to a year.
Provide income documentation, such as pay stubs and tax returns.

5. Consider a Subprime Lender

If traditional banks reject your application, consider subprime lenders. These lenders work with higher-risk borrowers but charge higher interest rates.

6. Explore Government-Backed Programs

Although Canada doesn't have FHA or VA loans like the U.S., there are other government programs, like the First-Time Home Buyer Incentive, that could offer some assistance for those recovering from financial setbacks.

7. Work with a Mortgage Broker

A mortgage broker can help you find lenders who specialize in working with borrowers who have a history of bankruptcy or foreclosure.

8. Provide a Letter of Explanation

A letter explaining the circumstances of your bankruptcy or foreclosure can help your case, especially if it was caused by an unexpected event like medical bills or job loss.

9. Expect Higher Interest Rates

Be prepared for higher interest rates, especially if you're working with a subprime lender. However, a larger down payment and improving your credit can help lower these rates.

In Canada, qualifying for a mortgage after bankruptcy or foreclosure is possible with time and effort. Rebuilding your credit, saving for a larger down payment, and demonstrating financial stability will improve your chances of approval. Working with a mortgage broker can also help you navigate the process and find the right lender for your situation.

Georgia .