How To Get a Mortgage After Bankruptcy: Mortgage For Bankrupts 101

How To Get a Mortgage After Bankruptcy: Mortgage For Bankrupts 101

**Note to reader: This article was written by Alex Lavender, a Halifax-based local mortgage broker. We are asked this question often and thought it would be best to get information directly from an industry professional. If you have any questions about obtaining a mortgage after you have filed for a bankruptcy or consumer proposal, we recommend reaching out to a mortgage professional near you. We do not endorse any specific mortgage broker and recommend that you do your own research prior to engaging any financial service professional.

If you have gone through a bankruptcy or consumer proposal, you can still qualify for a mortgage with as little as 5% down within a relatively short period of time. This article will explain exactly how you can do this, but it’s important that you discuss your specific situation with your local mortgage broker to understand the nuances that might affect your loan.

How to get a mortgage with only a 5% down payment

In order to qualify for a 5% down payment, you will need to be two years past the discharge date and you will need to adhere to the 2-2-2 Rule for established credit (2 credit lines, 2 years of length, with a limit of $2,000 or more on each).

You must also ensure that you have not had any missed payments after your bankruptcy as this will be a deal-killer (in the bank’s eyes, you didn’t learn your lesson). If you have missed payments, you will need to wait until the bankruptcy falls off your credit bureau. This will be six years if it is your first bankruptcy, or 14 years if it is your second.

Contact Equifax and Transunion if you want to know your credit score & history.

When you will need a higher down payment (20% or more)

If you have not satisfied the criteria above, you will be looking at putting down at least 20% of the purchase price as a down payment, possibly as high as 35%—and you may have to go through an alternative lender.

Other considerations: Special circumstances

Of course, with everything and especially mortgages there are special circumstances that even if you meet the above-mentioned criteria may hinder your ability to get a mortgage. Here are the two main ones you should be aware of.

Double Bankruptcy

If you have had a double bankruptcy, then you will need to put 20% down or wait 14 years after the discharge date, which is when it comes off your credit bureau.

House Included In Bankruptcy

If a house was included in the bankruptcy, you can still put as little as 5% down. However, potential lenders will scrutinize it on a much higher level. More could be required of you, such as a longer waiting period or requiring new credit lines that have been established for much longer. This type of situation is dealt with on a case-by-case basis, encompassing all factors of the transaction.

What is considered good credit when it comes to a mortgage?

Credit is one of the most important aspects when it comes to qualifying for a mortgage, and it’s also one of the hardest things to change quickly. When it comes to credit, there are two important aspects that lenders consider: your credit score and credit history. Even if you have a strong credit score, if you lack the minimum credit history requirements, you could be declined for a mortgage.

The majority of lenders use the FICO credit score from Equifax, here are the different levels of credit:


This will give you access to almost every lender in the market. You will also be able to qualify for more money as the debt servicing ratios can be extended (GDS and TDS ratios will be at 39% and 44%, respectively).

GDS is the percentage of your housing costs relative to income, and TDS is the percentage of your housing costs + other debts relative to income.


This is the minimum credit score if you want to do a $0-down mortgage or borrow the funds from a line of credit or credit card for a down payment. The GDS and TDS ratios are reduced to 35% and 42%, respectively.


This is the minimum credit score for a 5% down payment. The ratios would be 35% for the GDS and 42% for the TDS in this scenario.


In this category, a down payment of at least 20% will be required and you will have to use an alternative lender, possibly even a private lender.


If you are in this category, you can expect down payments as high as 35% through either a private lender or an alternative lender. Unlike banks, private lenders & alternative lenders are usually only accessible through a mortgage broker.

How To Quickly Improve Your Credit Score

One of the quickest ways to improve your credit score is to decrease utilization. What is utilization? It is the percentage of your credit line that is currently being used, and a lower utilization is always better. For example, if your credit card has a limit of $1,000 and you currently have a balance of $900, then your utilization would be 90%, as you have used almost all of your available credit.

Utilization is essential when it comes to revolving credit lines. These are products like credit cards and lines of credit that can be actively drawn down and paid back at any time. It is not as important with products such as loans that have one high starting balance that is paid over time.

Roughly 35% of your credit score is calculated from utilization. As soon as your credit lines are more than 50% utilized, they strongly begin to negatively affect your score. If you are currently over your limit on any credit lines, this will dramatically reduce your credit score.

Reducing utilization is by far the quickest way to increase your credit score. I have seen scores increase by over 100 points just from reducing utilization. Start by paying down any over-limit credit lines first, followed by paying down the next highest utilized debt. Try to pay each one down to 50% or less of the limit for maximum effectiveness. If you can pay them down below 50% or even down to $0, this will help improve your score even more.

It is important to try to evenly apply this across all credit lines. If you have one credit line that is 90% utilized and another that is at only 10%, this strategy will be ineffective. Instead, it would be more beneficial to have them both at 50% instead.

Credit History

Your credit score isn’t everything. Even if you have a credit score that is above 650, you can still get declined for a mortgage due to your credit history. If you don’t have an established credit history, the lender doesn’t have anything to base their decision on. For established credit, adhere to what I call the “2-2-2 Rule” and you will be safe: 2 credit lines, 2 years of history, with a limit of $2,000 or more on each. If some variation of this can be met, a lender will typically approve an application.

For instance, maybe you only have one credit card but it has a limit of $5,000 and you have had it for over two years. If these requirements can’t be met, then you will likely be looking at a down payment of at least 20%, as well as higher interest rates through an alternative lender.

Ensure that at least one of your credit lines is a revolving account where you can draw and pay back the money on demand, such as a credit card or line of credit. If you are unable to get a credit card by applying to a bank, you will need to get a guaranteed credit card (Capital One offers a guaranteed Mastercard and Home Trust offers a guaranteed Visa).

The term “guaranteed” means that you will need to secure the limit of your credit card with a deposit, i.e., a $300 limit is a $300 deposit to the credit company.

Conclusion – Getting a mortgage after bankruptcy is possible

As you can see, obtaining a mortgage after you file bankruptcy is possible but it will require some effort on your part. In this article, we focused primarily on obtaining a regular family home in an urban area. Various other factors such as if you live in a rural area or if you are trying to purchase a mini-home, cottage or rental property can impact your ability to qualify. Every situation is different and unique and so it is highly recommended that you speak with a mortgage professional.