If you’ve had to declare bankruptcy, or are considering declaring bankruptcy, it’s good to know how soon after declaring bankruptcy you can purchase a house. How long of a wait to buy a house after declaring bankruptcy depends on a number of factors, such as how recently you’ve received a discharge from your debt and how well you’ve done in rebuilding your credit. Here are some tips to help you work towards buying a house after declaring bankruptcy.
Steps to Buying a House After Bankruptcy
Step 1: Get your finances in order
When you file for bankruptcy in Canada, your discharged debts stay on your record for six years. You may be tempted to go out and find your dream home as soon as your debts are discharged, but without careful planning and preparation you will not get a very good mortgage deal.
Before making a move you should first start rebuilding your credit by getting a credit card to pay for your regular bills and day-to-day expenses and ensuring it is paid on time each month. Lenders use your credit score measure your ability to manage credit obligations responsibly, so to increase it you should be aware of payment deadlines and always stay well below the card limit. If your credit limit is $2000, never exceed $1500. This shows lenders that you are able to successfully and responsibly handle a credit card. Creating a monthly budget to follow will help ensure that you do not exceed your limit – consider your finances fully and allocate money where it needs to go to cover expenses.
Step 2: Work towards savings
Building your credit back up is only the first step to becoming financially ready to buy a house after bankruptcy. You also need to ensure that you build your savings and have enough to put towards a down payment and the closing costs associated with buying a home. Plan in your budget to make monthly contributions into two separate savings accounts – one for a rainy day fund or retirement savings, and another for buying a home. Building your savings enough to make a down payment on a home could take anywhere from a couple of months to a couple of years, but it is important to remember that the more time you spend preparing, the closer you are to having your bankruptcy removed from your financial record.
Step 3: Find a bank or mortgage broker
It is a good idea to get pre-approved by your mortgage broker or bank before you go looking for a house. Getting pre-approved allows you to know exactly what you can afford and helps you look at homes within your means without stretching your finances too thinly. Having a trusted mortgage broker to refer to can help you find the best solution for your situation. If you do not have one, Lincolnberg would be happy to refer you to some of the industry’s best mortgage lenders. Contact Us for information!
Step 4: Decide on resale or new construction
There are many factors to consider when buying a home, and deciding whether you want to purchase new construction or a resale home is one of the most important things to decide early on. Resale homes offer a variety of quick possession options to suit different needs, however they often require extra work and are costly to maintain. There may be unknowns that are not discovered or disclosed until after purchasing, and the responsibility of handling these issues falls on the new homeowner.
While new construction homes may cost a bit more in the beginning, they are more energy efficient and brand new, costing you less money in the long run. A new home comes without any unknown history or surprises, and you often have the support of a builder or developer to help navigate any issues that may arise.
Read our guide on resale and new construction homes to decide what’s right for you: New Construction Homes vs. Resale: 15+ Important Pros and Cons
Step 5: Buy your home
Filing for bankruptcy does not mean you will never get a fair mortgage rate. In fact, according to Bankruptcy Canada, individuals who have filed for bankruptcy are considered to be less of a credit risk because their debts have been discharged. If you have filed for bankruptcy or are considering doing so, you will still be able to own your dream home.
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