Bankruptcies, late payments and other dings on your credit are not equally bad in the eyes of Red Deer mortgage lenders. Let’s look at how different credit problems are handled by lenders when assessing your eligibility for a mortgage in Red Deer and the loan terms they would offer.  

Bankruptcy 

There are times when bankruptcy seems like the only option. Small failure of your business, going into debt and then losing it all when you lost your job, and other situations like divorce can drive people into bankruptcy. Bankruptcy promises a fresh start, but creditors are leery of loaning you more money. If you’ve filed bankruptcy in the past few years and want to buy a home with less than 20% down, you’ll have to be discharged from the bankruptcy at least two years and started to rebuild your credit. You must have paid these payments on time. Being late on these new lines of credit is a major red flag to creditors.  

A larger down payment works in your favor, since this reduces the lender’s risk. If you haven’t been out of bankruptcy for at least two years or you have made some mistakes managing money since your bankruptcy was discharged, you could still get a mortgage through a B lender, provided you put at least 20% to 25% down.  

Foreclosure  

Conventional bankruptcy is bad for your credit. From the point of view of mortgage lenders, foreclosure is worse than bankruptcy. If you’ve gone through a home foreclosure, most mortgage lenders will require you to wait at least four years before consideration of issuing a new mortgage. If your foreclosure was part of a bankruptcy, you’ll have to wait at least four years after the bankruptcy was discharged to secure a new home mortgage. An A lender will require at least 10% down usually. A larger down payment may persuade them to give you a loan a little sooner, though a pristine payment history is necessary.  

Consumer Proposals / Debt Consolidation  

Consumer proposals and debt consolidation are treated like bankruptcies by lenders however you do not have to wait as long after discharged. You have to re-establish credit and pay all bills in full for at least a year usually they want 2 years. The upside of debt consolidation/consumer proposals is that they aren’t as bad as bankruptcy. If you’re putting at least 10% down on a home, you might be able to get a new mortgage a year after the case is discharged. Two years later, you almost certainly could secure a mortgage if you’ve had perfect payment history on a new revolving line of credit or installment loan like a car note.  

Judgements  

Judgements are not as bad as a bankruptcy or consumer proposals, but they are almost as bad. When a judgment is issued against you, you should have a good reason for it when you apply for a mortgage soon after. They may forgive it if you can show it was due to an unexpected job loss or sudden, steep medical bills, divorce or some other life situation beyond your control at the time. If that crisis has passed and you’re back to paying your bills on time, then you may be able to get a mortgage. This is possible even less than a year after the judgement was issued. If you’re still struggling to pay the bills, they won’t issue you a mortgage.  

Collections  

Collections are slightly less severe than a judgement, since they’re the step before a judgement when a creditor isn’t getting paid. Like judgements, lenders may be willing to extend a mortgage if you have a good explanation for it and you’re back to paying your obligations on time. For example, being able to show that the collections were due to an extended job loss and that you have a stable job now may be enough for them to overlook the collections when you apply for a mortgage. If your income is back up or you’ve regained control of your finances, you may be charged qualify for a mortgage.  

Late Payments   

Late payments are a slight ding on your credit, though they’re the easiest to rack up. Creditors are going to look at your payment history rather than the most recent late payment. If you have a history of late payments, they’re going to judge you a severe credit risk and want a larger down payment or co-signer to mitigate the risk. If you have a history of paying payments on time, they may ignore a single late payment or a spate of late payments you can explain during a certain time frame. “We moved and didn’t get the new bills.” “I lost my job, so we were a week or two late on everything until my first paycheck came in.”  

If you want to buy a home, get a handle on your bills and aim for at least eight months of paying your debts on time and in full. The better your credit, the better terms a Red Deer mortgage broker can find for you.  

Summary  

Different credit issues are treated differently by mortgage lenders in Red Deer. This is why someone with a dinged credit history should consult with a Red Deer mortgage broker, since not every mortgage lender will penalize you as much for late payments or a bankruptcy a couple of years ago. Call Whalen Mortgages Team today to help plan for your future home purchase in Red Deer. We work for you not the banks. We do not only get your approved we help financially strategize with you to get a mortgage down the road. When the banks say no we say yes.