The Truth: Getting a Mortgage After a Consumer Proposal
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By Bromwich+Smith Staff | 600 words | Reading Time: 3 minutes | Date: 2022/01/25
After you file a consumer proposal, the last thing on your mind might be a new mortgage, but you may be a lot closer than you think. A consumer proposal has an impact on your credit score so a key element will be about rebuilding your credit. For most credit reporting agencies, a consumer proposal stays on your credit rating for 3 years after you completed your proposal, or six years after you filed your proposal (whichever comes first),
Mortgage lenders will need to determine if you qualify for a mortgage and there is criteria they are looking for. These elements are: character, collateral, capacity, capital and credit score. If you can illustrate to a lender you have taken steps to rebuild your credit and that you can meet their other lending criteria then you may qualify for a mortgage after a consumer proposal filing.
How to Rebuild Your Credit
- Pay off your proposal as quickly as possible
The quicker you pay off your consumer proposal, the sooner it will be purged from your credit report, which is an excellent start to rebuilding your credit.
- Save money
Another important step is to start saving. A savings account will prepare you for unexpected expenses, provide cash for purchases, and prevent you from having to live from paycheque to paycheque. Your savings account will also allow you to begin preparing for homeownership by providing you with a down payment.
- Pay your bills on time
Making timely payments on current debts such as an automobile or other secured loan is an excellent way to repair your score.
Open a small secured credit card account
If possible, open a small secured credit card account after your consumer proposal is complete. Choose one that reports to Trans Union or Equifax, keep your balance below 50% of your limit, and make all payments on time.
For more details feel free to visit our online webinars in partnership with Richard Moxley, author and credit expert.
When Can You Buy A Home After A Consumer Proposal?
This is a question many people ask but first things first: pay off your consumer proposal completely before you take on major mortgage debt. If you have at least a 20% down payment, you may even be able to buy as soon as you complete your consumer proposal!
Here is what lenders could require:
- A larger down payment, sometimes 15 to 25%
- A higher interest rate
- A full appraisal by a home inspector
- A limit on the kind of home they are willing to finance
If you have less than a 20% down payment, you will be looking for a high-ratio mortgage, which has default insurance, from one of CMHC, Genworth or Canada Guaranty. In that case, you will need at least two years of clean, new credit since you completed your consumer proposal.
In the worst case, three years after you completed your proposal, or six years after you filed your proposal (whichever comes first), it will fall off your credit report and whether or not you qualify for a mortgage to purchase a home will depend on the usual mortgage qualification criteria everyone faces.
The good news is that as your credit improves you can begin to borrow money. Make sure to remind yourself that you have completed a consumer proposal and conquered your debt; so don’t be in too much of a hurry to take on new debt if you can avoid it.
We also want to remind you that we are here to help. Don’t hesitate, call us today to receive an initial free, no obligation, confidential consultation by phone 1.855.884.9243. You can also request a call. We want to see you flourish!