Buying a Home With Bad Credit
If you’re feeling financial pressure from debt, be assured, you are not alone. In the last year, over 100,000 Canadians have declared personal bankruptcy and just as many, even more, will become insolvent in the year ahead.
If, as a result of financial difficulties, your credit rating has been compromised and it looks like that new home purchase is not in the cards for the near future, take heart. All is not lost, not even for the would-be homeowner with bad credit. There are things you can do to make that dream home a reality sooner than you think and despite that bad credit rating.
Fix Your Credit
To start, you can increase your chances of getting that home mortgage by taking steps to fix your credit rating. You’ll need to obtain credit reports from Canada’s two consumer credit reporting agencies, Equifax and Transunion. Any bank or institutional lender doing a credit check may use either one or both of these agencies so it’s in your interest to see both credit reports. Review them for discrepancies and inaccuracies, clean up what you can, and contact your creditors to discuss debt repayment. Your objective is to get your credit score to at least the 650 mark and higher, if possible. Debt consolidation loans, credit counselling, debt management plans – these are all possible solutions to relieving your burden of debt and should be considered. A little online research will tell you what you need to know about these options.
Consumer Proposal & Personal Bankruptcy
Depending on your financial situation, if your debt is truly overwhelming, you may want to consider two additional options: debt negotiation and personal bankruptcy. It is sometimes possible to negotiate a debt settlement agreement by hiring a Licensed Insolvency Trustee (LIT) to administer a consumer proposal. A consumer proposal is a legally binding agreement between you and your creditors made on your behalf by the LIT. A consumer proposal may offer to pay a percentage of the debt, usually an amount that is feasible given your financial circumstances at the time of negotiations. Alternately, an extended repayment schedule that enables you to honour the debt over a longer period of time may be negotiated on your behalf.
Be aware that one of the consequences of filing bankruptcy or making a consumer proposal is that, until your discharge, a bank will not approve you for a mortgage loan. An absolute bankruptcy discharge, though it releases the debtor from all personal liability for his/her debts, can take as little as nine months or as much as several years. There are certain types of debt that are non-dischargeable. If you’re considering bankruptcy, consult a Trustee to learn more.