Our topic today may only interest a few people, but these Consumers may be shy or embarrassed to ask the questions or seek the answers. Sometimes credit worthiness is camouflaged by extraordinary circumstances that force normal people into bankruptcy. Once bankrupt (for whatever reason), it becomes very difficult to buy a home. The old adage "what came first the chicken or the egg" certainly comes to light.

Most lending institutions in this country will insist that you have been discharged from your bankruptcy for a reasonable length of time and that you have re-established credit. How can you re-establish credit if you have been bankrupt? That is the first question we will address today.

To re-establish credit after a bankruptcy (discharge), one must apply for an instant RRSP loan for $500-$1000 over a six month term at most lending institutions. Do not hide the fact you were bankrupt! Most institutions will allow for instant RRSP loans, whether discharge bankrupt or regular client. Once you have the loan, do not pay it off faster than the term dictates (six months minimum). In six months’ time, just as you are making your last RRSP loan payment, go into the same lending institution that granted you that loan and apply for a "holiday" loan in the same amount as your old RRSP loan for the same six month term. At the end of that period, with that loan paid off "as agreed", you have now re-established an I-1 credit rating. At that point in time, you should be able to get any credit card your little old heart desires. One credit card should do the trick. You mainly want it for emergencies and for identification. Start with a credit limit of $500. A car lease will not be construed as re-established credit, since it is considered a necessity of life.

Now on to mortgages. As a previous bankrupt, time and down payment will dictate whether you are granted a mortgage or not. The following is simply a guideline and should not be construed as being an automatic approval. Some lending institutions simply won’t talk to you for seven years. That is their loss!

 

35% down 25% down 15% down 10% down 5% down
Time after discharge immediate immediate one year two years four years
Fee to lender .50% of loan 1% of loan 2% of loan may be none none
Fee to Broker 1% of loan 1% of loan 1% of loan may be none none
Rate bank posted rate + 1.5% bank posted rate + 2% bank posted rate + 3% bank posted rate bank posted less .5%
Terms 1-5 years 1-5 years 1-5 years 1-10 years 1-10 years

All of the above have variables. As I stated, time and money down will dictate whether you will be granted a mortgage. The more money down, the less the waiting period. The down payment may be all yours or a combination of cash and "vendor-take-back" secondary financing. Some lending institutions may request guarantors in order to by-pass existing policies. I personally don’t believe in putting a guarantor on the hook for an indefinite period of time. The rates and fees described above are without guarantors. The latter two boxes (10% down and 5% down) will also insist that you have re-established credit for at least one year. Those of you who have undergone a "proposal" under the Bankruptcy Act, may get somewhat of a break, but the time constraint will be longer than a normal bankruptcy.

I do not advocate bankruptcy, however circumstances may dictate otherwise. Once discharged, you should be granted the opportunity to buy a home.