Loan Articles

The mortgage products available to discharged bankrupts are more limited due to the fact that their credit score is seriously damaged. The same is true for persons with delinquencies, consumer proposals, defaults, and a history of late payments. Still, there are options to consider even if you filed for bankruptcy.

Factors That Determine Eligibility

You may qualify for a mortgage loan provided that you make steps to improve your credit score and financial situation. The most important thing is to prove banks that you can manage credit responsibly. There are ways to do this – you can do it by paying your utility bills (gas, electricity, etc.) and rent on time. Another option is to apply for a secured credit card and make timely payments.

The type of property is also important. Some financial institutions only consider row townhouses and houses but not stacked houses, studios, and flats. The reason is that condominiums are harder to sell in some areas, and lenders take more risk in case of default.

Factors That Work to Your Advantage

The waiting period depends on your particular circumstances. It may be shorter if you filed for bankruptcy as a result of prolonged illness, complicated divorce, the death of a spouse, or another serious or life-changing event. In this case, financial institutions request that borrowers enclose a hardship letter to explain their circumstances. You should enclose documents such as your divorce settlement, hospital bills, and others, if applicable.

What Qualifies as Hardship

In addition to court-approved divorce settlement and medical bills, there are other examples – unexpected home maintenance and repairs, increased expenses, incarceration, and military service. Excessive debt also qualifies, but this depends on the lender. Other examples are exotic mortgage terms and interest rates, family problems and marital difficulties, and separation. Financial institutions will consider your hardship letter in case of involuntary or voluntary job change or transfer, medical emergency, as well as job loss and period of unemployment. Reduced income that is the result of a pay cut, your spouse’s loss of job, or furloughs also count as mitigating circumstances. Basically, financial institutions are interested in how the borrower got into the present situation and ended filing for bankruptcy. To prove your case, enclose supporting documents that show reduced income, excessive debt, etc. If your mother or father needs help or long-term medical care and has moved with you, make sure you explain this in your hardship letter. Your chances of getting approved for a mortgage would improve.

As a rule, financial institutions are more lenient if bankruptcy is the result of a serious event than excessive debt, maxed out credit cards, and poor management habits. Pathological gambling or shopping sprees are not going to work to your advantage.

Mortgage Solutions

While it may be difficult to get approved for a standard mortgage, there are other ways to obtain financing. Contact non-conforming lenders in your area and ask about their loan programs, criteria, and terms. They may consider your application provided that you show proof of stable income and regular payments within a certain period. While criteria vary from one lender to another, your chances of getting approved increase if you show proof of good credit within 2 years of filing for bankruptcy. If you are a recent bankrupt, it is best to use the services of a mortgage broker who will advise you on your options and the criteria of different financial institutions. They are offered a commission by banks which is an incentive to find the right loan for you.