Can You Get a Mortgage After a Consumer Proposal?
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By Taz Rajan & Rosemarie Gauthier | 737 words | Read Time: 3 min, 10 seconds
If you’ve ever found yourself in the position of needing debt relief services, then the term ‘consumer proposal’ has probably crossed your path. “What is a consumer proposal?”, you may ask.
In a nutshell, it’s a legally binding debt relief process where you propose to pay your creditors some of what you owe and/or make payments over a prolonged period, up to five years. You work with a Licensed Insolvency Trustee to develop this arrangement, which is negotiated to be accepted by both you and your creditor(s).
Now, let’s skip ahead five years to where you find yourself in a much better position, financially. You’ve completed the consumer proposal – Congratulations! – and you are thinking about buying a home. Maybe this is your first home. This is a very exciting, yet nerve-wracking stage in your life because buying a home is the biggest purchase you will ever make.
And then you think to yourself, “Wait a minute… How long am I supposed to wait before I apply for a mortgage? Can I even get a mortgage after a consumer proposal?”
The answer really depends on the lender. Often, the largest banks and the CMHC (Canada Mortgage and Housing Corporation) would like to see two years lapse from the date of completion of your proposal before providing the best rates and terms. On the other hand, if you have, at least 20% of the purchase price available for a down payment and proof of gainful employment, you may be able to go house shopping as soon as you’ve completed the consumer proposal!
With any lender, it is helpful to show you have been working hard on rebuilding your credit history.
Rebuilding Your Credit With Credit Cards
You can start rebuilding credit during your Consumer Proposal. Yes! You read that right. You can do that by starting small.
One option is with a secured credit card. A secured credit card is a credit card that is backed by cash. As an example, you could give the lender a deposit of $1000 and receive a credit limit of $1000. You use it like a regular credit card, and pay off the balance in full each month to use it again. This is a great stepping stone to rebuilding credit as credit cards tend to impact your credit score quickly.
Another way you can start rebuilding credit immediately is to apply for a credit card with a low limit (say, $500) and if you make at least your minimum monthly payments on time, your credit history will reflect that. Banks like to reward good clients by increasing their credit limits, so they may offer you an increase down the road.
You may be tempted to accept this credit limit increase, but it is really in your best interest to keep that limit within the range of what you can afford. Lenders want to see that you can carry debt and make your payments on time while maintaining your debt-to-income ratio.
A Car Loan Can Help Too
Another option is with a car loan. You can work with a lender that will build a loan to fit your budget and your needs that is specifically approved after you have signed into your Consumer Proposal. You can purchase a vehicle and build your credit at the same time!. Our auto lender partners work specifically with insolvency clients to ensure fair vehicle financing options.
What Else Can You Do?
It is also worth noting that your wait time to purchase a new home may also be reduced if you have a financially strong co-applicant or a co-signer. If owning a home is in your future, it is best to speak with a licensed mortgage professional today and ask them how you can start to prepare now for tomorrow.
What Do You Do Now?
Buying a home after a consumer proposal is possible if you are determined to make it happen. Saving that 20% down payment may be your biggest challenge, but hopefully, you have learned some new techniques on how to save money from your insolvency team.
Stay focused and keep squirrelling away your money and before you know it, you will be in your brand-new home. A home that you can be proud of.
It all starts with a call to a debt relief specialist like those at Bromwich+Smith.
Taz is a Community Engagement Partner at Bromwich+Smith and has been in the finance industry for nearly two decades and has always been passionate about education and empowerment.
Rosemarie is from Winnipeg, Manitoba and holds a diploma in Digital Marketing from Robertson College. She also has 16 years experience working in the retail banking industry as a Personal Banking Advisor.