Consumer proposals are a widely used method for Canadians grappling with debt problems. They offer assistance during financial hardships. However, if you own a mortgaged home or intend to apply for one, you may be curious about the impact of a consumer proposal on your situation.
Important: If you’re facing financial concerns and struggling with payments, it’s advisable to consult a Licensed Insolvency Trustee at Harris & Partners. This will help you explore your options and propose a debt payment solution to your creditors. Harris & Partners offers expert guidance and debt counseling to help you regain control of your finances.
In this article, we’ll discuss how a consumer proposal can influence your current home and mortgage prospects.
Can I even get a mortgage after a consumer proposal?
This depends on the lender you approach. Typically, major banks and the Canada Mortgage and Housing Corporation (CMHC) prefer to see a waiting period of at least two years from the date your consumer proposal was completed before offering the most favorable interest rates and loan terms.
Will a consumer proposal affect my mortgage?
Many creditors may not update late payment records, even if they accept your repayment plan. In summary, a consumer proposal won’t impact your existing mortgage but may pose challenges when seeking a new mortgage or renewing an existing one.
What will happen to my home if I file a Consumer Proposal?
If you own your home, things stay the same. You can keep living in it as long as you meet your Consumer Proposal obligations, like making timely payments, and keep up with your mortgage payments.
Your mortgage provider may ask for additional proof that you can handle both your Consumer Proposal and mortgage payments, but as long as you assure them of regular, full payments, you should be fine.
Will a consumer proposal impact my ability to get a new mortgage?
When you apply for a mortgage, you’re essentially borrowing money from a mortgage lender to finance your home purchase, which you’ll repay each month through mortgage payments.
It wouldn’t be accurate to claim that a consumer proposal has no influence on your mortgage eligibility. Lenders typically prefer applicants with a solid track record of repaying their debts, while a consumer proposal suggests past financial challenges.
However, securing a mortgage with a consumer proposal isn’t impossible; it just presents a somewhat greater challenge compared to typical circumstances.
Can you get a mortgage during a consumer proposal?
A Consumer Proposal shouldn’t hinder your ability to secure a new mortgage, even if you still have an existing one to pay off. You can provide the necessary documents to the bank, such as pay stubs and tax returns.
While some lenders might delay mortgage approval until your debts are settled through the consumer proposal, others may not even be aware of your Consumer Proposal until it’s concluded.
To improve your chances of approval, it’s advisable to make a substantial down payment (around 20%) to reduce your liability to the mortgage lenders and demonstrate your improved creditworthiness. However, it’s generally recommended to wait until your Consumer Proposal is fully completed and court-approved before applying for another loan.
Can you get a mortgage after a consumer proposal?
If you’re considering mortgage financing following a Consumer Proposal, mortgage brokers will seek proof of your reduced credit risk. To assess this, they are likely to inquire about the following:
1. Have you managed to improve your credit score since the end of your consumer proposal?
Every mortgage agent will seek verification that someone who has previously undergone a Consumer Proposal has taken steps to enhance their credit history. Typically, they will request evidence of a two-year period following the conclusion of the arrangement during which you can demonstrate credit improvement.
2. Have you managed to secure a credit card or another new line of credit?
Related to the previously mentioned point, the process of rebuilding credit frequently involves acquiring a new type of credit, whether it’s through credit card debt or another form of payment. If you’ve established a track record of responsible credit usage and timely repayments since concluding your Consumer Proposal, it will provide assurance to your mortgage broker that you’re reliable when it comes to repaying your debts.
3. Have you saved a reasonable down payment for a new home?
Similar to the process of obtaining a mortgage in typical situations, the larger your down payment, the higher your chances of securing a mortgage become. When you invest more of your own funds into the property, you reduce the risk for the lender. Individuals with Consumer Proposals should anticipate that mortgage brokers may require a down payment of approximately 20% of the total mortgage amount.
How Long After a Consumer Proposal Can I Expect to Get a Mortgage?
If you’re in the process of rebuilding your financial stability, you might be curious about the waiting period after a consumer proposal to secure a mortgage. However, this timeline can vary depending on the lender. Traditional lenders typically wait until your credit is back within a standard credit range before considering a new mortgage. As mentioned earlier, alternative lenders tend to be more flexible and accommodating during this period.
On the other hand, you have the option to apply for a mortgage even while you’re in the midst of a consumer proposal. However, the lender will still assess your creditworthiness and require documentation. It’s essential to keep in mind that if your mortgage financing or renewal refinancing is approved, you’ll be expected to use the funds to settle the consumer proposal.
How can you speed up getting a mortgage after a consumer proposal?
To enhance your prospects of securing a mortgage while still in the midst of a consumer proposal, and ultimately transitioning to life after it, you can undertake several measures:
- Successfully completing your consumer proposal by fulfilling all its obligations.
- Saving 20% down payment for a property.
- Collaborating with a private lender instead of a traditional lender.
- Diligently working to improve your credit score by responsibly managing credit accounts and rectifying any reporting inaccuracies.
Will a Consumer Proposal Affect Mortgage Renewal?
After working hard to secure your home, you might wonder how a consumer proposal affects mortgage renewal, a common concern among homeowners facing this situation. Your home is a valuable asset, and losing it would be devastating.
Keep in mind that entering a recent consumer proposal labels you as a credit risk. Completing the proposal doesn’t erase your debt repayment history. Consequently, most lenders typically won’t consider financing a mortgage until you’ve maintained a clean credit record for at least two years after the proposal’s conclusion. However, you can enhance your chances with a 20% down payment and documentation showing your efforts to rebuild your credit.
In this situation, exploring alternative lenders is essential. Some of them consider personal attributes, unique circumstances, and your specific financial scenario, not solely relying on numbers. Alternative lenders evaluate your situation and assess the risk associated with a consumer proposal.
Is there a mortgage broker for people with a low credit score?
Alternative lenders in Canada cater to individuals with poor credit, making them a viable option for those emerging from a Consumer Proposal concerned about traditional lenders’ rejection.
Opting for an alternative lender may increase your chances of mortgage approval. Their marketing often emphasizes guaranteed acceptance regardless of your credit history. However, securing a mortgage from such lenders comes at a price.
Lenders specializing in clients with adverse credit records are aware of the limited options available and may capitalize on this by imposing elevated interest rates on your repayments and imposing costly late fees for missed payments.
What if I need debt advice and support with my financial life?
If you’re a homeowner grappling with financial challenges and apprehensive about debt repayment, you’ve likely explored various debt solutions.
You might also be worried about how these options could impact your current mortgage or your prospects for securing one in the future. This is where our expertise comes in.
Navigating a debt situation can be stressful, and determining whether a consumer proposal is suitable for your specific circumstances can be challenging. While each case is unique, it’s advisable to consult a licensed insolvency trustee to identify the most suitable course of action.
For a discussion about consumer proposals in Canada with one of our licensed insolvency trustees, please reach out to us today. Contact Harris & Partners Inc. at 1-800-268-8093.