A great article posted by the CBC today, entitled “Debt’s Dirty Dozen Danger Signs” highlights an issue we mortgage consultants come across all too often. That is: people waiting too long to ask for help.
As you may be aware, if you have equity in your home, and are feeling overwhelmed by your monthly payments on high interest debts such as credit cards or car loans, it is often possible to give you financial breathing room by doing a debt consolidation (paying off debt by rolling it into a lower interest mortgage). This can lower your monthly payments, and reduce your interest costs by a tremendous amount.
However, there’s a catch. If we get the call from our clients too late – after several mortgage payments have been missed, or credit cards are way over the limit, or debts have gone to a collection agency – it makes it very difficult, and sometimes impossible, to help. For example, most mortgage lenders are not excited about the idea of advancing several hundred thousand dollars, to clients who have already shown that they are consistently not paying their existing mortgage payment, and have not tried to re-negotiate terms with the existing mortgage lender. Because of this, the options we can offer you become very limited.
Your best bet is to call your mortgage professional as soon as you feel you might be running into trouble. We can help you review your options and figure out a plan of action.
Check out the article – it’s worth reading. And if you think you might need us to review your financial options, call now, not later.
Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But there's hope – there are a number of strategies for putting your credit back on track and getting approved for a mortgage, even after bankruptcy.
Here are some points to consider:
1. Locate the right lender: Some lenders will not approve a mortgage if a bankruptcy shows up on a credit report. However so-called "non-conforming" lenders may consider doing so, provided the borrower can demonstrate that he or she has the income to support the payments and is now a good credit risk.
2. Length of time since bankruptcy discharge: Different lenders have different criteria regarding the length of time since a bankruptcy after which they will grant a mortgage – often two years along with proof of re-established credit. Some lenders may consider applicants with a more recent bankruptcy – a mortgage broker can advise on the requirements of various lenders.
3. Reasons for bankruptcy: If a bankruptcy was due to factors beyond your control, this is more acceptable to the lender than if the bankruptcy was the result of poor money management and excessive debt, which can affect the terms of an applicant’s mortgage approval.
4. Size of down payment: With a past bankruptcy, most lenders like to see a minimum 10% down payment consisting of one’s own funds, and it can't be borrowed, or a gift. A down payment of 5% or less may be permitted, in some circumstances.
5. The type of property: Some lenders will only lend on houses or row townhouses. Very few will consider apartments or stacked townhouses, which may involve stringent criteria to qualify.
6. Credit report: A credit report provides a picture of your financial health based on past behaviour. Lenders are looking to see improvements over time.
7. Credit score: A borrower’s credit score may determine the rate of the mortgage — the higher your credit score, the better the rate. Some lenders have minimum credit score requirements for those with a bankruptcy.
8. Rate considerations: Most lenders charge a higher interest rate and even some extra fees to those with a bankruptcy. A lender may grant a better rate if certain lending criteria have been met, such as: two years since bankruptcy discharge, good re-established credit, minimum beacon scores, saved down payment, good debt servicing ratios, and a long-term history of job stability.
9. Re-established credit: Re-established credit shows the lender that a prospective borrower has new credit and has managed it well since bankruptcy. Typically, re-established credit should involve a recent record of on-time payments on major bank or credit cards. If you are re-building your credit, you need to be aware that a missed payment at this stage could be mentioned on your credit report for the next six years, and could be grounds for some lenders to decline a mortgage application.
10. Don’t do it alone: Consider asking a mortgage broker for help. For those with bad credit and/or bankruptcy, a mortgage broker can coach you on how to improve your credit score over time. While you work on bettering your score, a mortgage broker can advise you on how to get a mortgage despite bruised credit, and provide valuable expertise, both before, during, and after the mortgage financing process.
