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Can I Get A Mortgage With A Consumer Proposal?

13 October 2023

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Consumer Proposals and Mortgages

If you’re finding your way through the complexities of financial recovery while dreaming of owning a home, this is where your questions meet answers.

The journey towards home ownership is an exciting one. However, if you’re in the middle of a consumer proposal you might find yourself standing at a crossroads, wondering how this financial decision impacts your ability to secure a mortgage. It’s a common concern for many, and you’re not alone in looking for clarity.

We want you to have a clear understanding of the options available to you. Financial hurdles shouldn’t overshadow your homeownership dreams, so let’s get into the details and help you figure out how you can move closer to the keys of your new home, even with a consumer proposal in your financial history.

Key Points

Consumer proposals and your current home

If you already own your home, you shouldn’t have anything to worry about. As long as you keep up with the repayments, you can keep living in your home and paying off your current mortgage.

Your mortgage provider may ask for extra proof that you can afford both your consumer proposal and mortgage repayments. If you can assure them you’ll keep on top of the regular monthly payments, you should be fine.

Getting a new mortgage with a consumer proposal

If you’re wondering about securing a new mortgage while dealing with a consumer proposal, there’s good news – it’s definitely possible, there are just a few key things you need to understand.

Firstly, the lender you choose plays a big role. Major banks and the Canada Mortgage and Housing Corporation (CMHC) usually look for a two-year period after you’ve completed your consumer proposal before offering favorable interest rates and loan terms. This waiting period is seen as a time for you to rebuild financial stability.

A consumer proposal doesn’t have to block your path to a new mortgage, even if you’re still paying off an existing one. When applying, you’ll need to provide standard financial documents like pay stubs and tax returns. This helps banks assess your current financial situation.

However, lender policies vary. Some may hold off on approving your mortgage until your consumer proposal debts are fully settled, while others might not consider the proposal a significant factor if it’s already concluded.

To boost your chances of getting a mortgage approved, consider making a larger deposit, ideally around 20%. This reduces the lender’s risk and showcases your commitment and improved financial standing. That being said, it is usually wise to wait until your consumer proposal is fully completed and officially approved before seeking another loan.

Mortgages, consumer proposals and credit scores

Mortgage brokers will want evidence of your lower credit risk. They typically focus on three areas:

  • Credit Score Improvement: Post-consumer proposal, it’s important to show that you’ve worked on improving your credit score. Lenders often want to see a two-year period of improved credit behavior after the end of your proposal.
  • New Credit Lines: Rebuilding credit often involves getting new forms of credit, like a credit card. Demonstrating responsible use and dependable repayments since your consumer proposal can reassure lenders of your reliability.
  • Down Payment Savings: As with any mortgage, the larger your down payment, the better your chances of approval. For those with a consumer proposal, a down payment of about 20% is often expected.

When it comes to mortgage renewals, the situation is similar. As a mortgage renewal is essentially a new loan, lenders will be looking for the same reassurance. It’s not impossible to renew your mortgage with a consumer proposal, there are just a few more steps you need to take to prove you can keep up with the repayments.

Mortgage brokers for low credit scores

Alternative lenders in Canada help people with poor credit find the loan they’re looking for. This makes them a perfect match for anyone coming out of a consumer proposal.

While your chances of getting an approved mortgage may be higher, it’s important to remember that alternative lenders come with a cost. They will be aware of the limited options available to you and may take advantage of this, offering higher interest rates on your repayments and taking expensive late fees for missed payments.

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.

Get the debt help you deserve in Canada

Whether you’re already a homeowner or are hoping to be one in the future, debt and financial challenges can feel like a major hurdle to jump.

We know that finding your way through these situations can be difficult, but that’s where we can help. We will take the time to sit with you and understand your specific financial situation. From there we can find the best debt solution for you, that gives you the best chances of securing your dream home.

Get in touch with our Licensed Insolvency Trustees today and start your journey towards financial independence and homeownership.

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