If you’ve ever had to file a consumer proposal because of unmanageable debt, you’re not alone. Many Canadians use consumer proposals as a way to deal with their debts and avoid bankruptcy. But once you’re in a consumer proposal, you may wonder if you can still take out a loan, including a mortgage. So, what if you’re ready to become a homeowner but still have a consumer proposal looming? Will this prevent you from financing a home purchase?
Read on to find out how a consumer proposal may affect your ability to get a mortgage, the challenges involved, and what you can do to improve your chances of qualifying for a mortgage.
Key Points
- You may be able to get a mortgage while in a consumer proposal, but it will be much more difficult.
- You may either want to apply for a mortgage with a private lender or wait until long after being discharged from your consumer proposal to apply for a mortgage.
- To increase your chances of securing a mortgage, make a larger down payment, wait until your consumer proposal is complete and discharged, and work towards improving your credit score.
Can I Get A Mortgage While In A Consumer Proposal?
It may be possible to get a mortgage while you’re still in a consumer proposal, but your chances are slim.
Most big banks won’t loan you a mortgage for at least two years after you’ve completed your proposal, according to Sands-Trustee. This also gives you time to get your finances in order and start rebuilding your credit score. You can rebuild your credit during this time by getting about two credit cards and making on-time payments.
If you’re still in a proposal or you’ve recently completed it, you may find more success with a private lender. These non-bank lenders are generally more flexible with their lending criteria. So, they may be more willing to lend to borrowers with a consumer proposal, as long as you meet other qualification criteria and provide financial documents.
| Note: While you might have more success qualifying for a loan with a private lender, you can also expect to pay higher interest, including lender and broker fees. Since they’re taking on a greater risk lending you money, they tend to charge a higher interest rate because of it. Before taking on a new mortgage, make sure you know how much your monthly payments will cost and if you can realistically fit it into your budget. |
Learn more: Loans After A Consumer Proposal In Canada
Should You Wait To Get A Mortgage After A Consumer Proposal?
You should wait to get a mortgage after your consumer proposal to ensure you’re financially ready and can meet the lender’s standards. Different lenders have different criteria for when they’ll consider extending a new mortgage.
Many traditional lenders want to see a few years of clean credit history after your consumer proposal. This gives you time to start rebuilding your credit score into a good range.
That said, if you don’t want to wait, private mortgage lenders are more likely to lend to you sooner because they’re more flexible with how they structure financing.
If you have questions about when you should get a mortgage, you can always speak to your Licensed Insolvency Trustee (LIT).
Learn more: Life After A Consumer Proposal: Fastest Way To Build Credit
How To Increase Your Chances Of Getting A Mortgage While In A Consumer Proposal?
There are a few steps you can take to improve your chances of getting a mortgage during or after your consumer proposal:
- Work With A Private Lender. As mentioned, private lenders are often more flexible in who they’ll lend to and how they structure financing compared to a traditional bank lender.
- Save Up A Large Down Payment. Saving a large deposit of 20% or more helps to reduce the risk to the lender. It also reduces your loan amount and your monthly payments.
- Prepare Your Documents. Have your proof of income, employment, and credit report documents ready to go. Your paperwork should show that you’ve been working hard to pay your bills on time and rebuild your credit.
- Use A Cosigner: If possible, having a co-signer with a good credit score and strong finances can increase your chances of getting approved for a mortgage. However, keep in mind that this individual will be responsible for taking over the mortgage payments if you fail to make them.
- Complete Your Consumer Proposal. If you want to get a mortgage, work to pay off your consumer proposal as quickly as possible.
| Don’t Rush Into It: While you might feel ready to take on a mortgage, make sure you give yourself adequate time to get your finances under control. Avoid rushing into more debt if you still haven’t recovered from your past ones. Take some time to recover financially and build your credit after you’ve completed your consumer proposal to open up more lending opportunities at better rates. |
Things To Consider When Applying For A Mortgage In A Consumer Proposal
Securing a mortgage while in a consumer proposal comes with several obstacles, including the following:
Effect On Credit
A consumer proposal can significantly hurt your credit score. This hit to your credit rating can significantly limit your eligibility to get a mortgage.
Limited Options With Traditional Lenders
Banks and other traditional lenders typically deny mortgage applications from bad credit borrowers or those who are still dealing with a consumer proposal. However, private lenders are typically more flexible and often cater to individuals with a variety of credit backgrounds. Communicating your circumstances for filing a consumer proposal can also help your case.
Higher Interest Rates
Lenders who offer mortgages to low credit borrowers are taking on more risk. To offset this risk, these lenders tend to charge higher rates, making these mortgages more expensive.
Larger Down Payment Requirements
You may have to put forth a bigger down payment to secure a mortgage if you have bad credit or an active consumer proposal.
Active Consumer Proposal
Lenders are more willing to offer a mortgage to someone who has completed their consumer proposal instead of someone still in the process of completing it. If you’re still making consumer proposal payments, the chances of getting a mortgage are lower since you still owe money and your financial situation is still questionable.
Learn more: Can You Get A Car Loan After A Consumer Proposal?
Does A Consumer Proposal Impact Mortgage Renewal?
At the end of your mortgage term, you have to renew your mortgage or pay your balance in full. If you’re not in a consumer proposal, this is the time to shop around to see if you can negotiate a better rate with another lender.
A consumer proposal shouldn’t affect your ability to renew your mortgage if you’ve been making your payments on time. Only about 3% of mortgage renewals are refused in Canada, making this a rare occurrence. However, it could affect the interest rate you’re offered when you renew.
Can I Get A Mortgage From The Bank While In A Consumer Proposal?
To get a mortgage from a traditional lender, at least two years must pass after being discharged from the proposal. If you’re still in the middle of a consumer proposal, you’ll likely have trouble getting home loan financing from a traditional bank.
Can You Refinance Your Mortgage While In A Consumer Proposal?
Refinancing your mortgage involves paying off your mortgage with a new loan. The new mortgage comes with a new interest rate and terms. Refinancing allows you to access the equity you’ve built in your home.
While it’s possible to refinance your mortgage in a consumer proposal, you’ll have to go through the new lender’s qualification process. This is similar to when you apply for a regular mortgage.
Since your credit score is significantly affected by the consumer proposal, you’ll have to provide employment, financial, and credit information. You might find this difficult with a traditional lender.
If a lender approves your application, you’ll have to use any proceeds to pay out your consumer proposal.
What Happens To My Mortgage If I File For A Consumer Proposal?
If you keep making your mortgage payments on time, nothing should happen to your current mortgage when you file a consumer proposal. You don’t have to sell your home, and your lender won’t come after you unless you stop making your payments.
Bottom Line
While it’s possible to get a mortgage while in a consumer proposal, this doesn’t mean you should. You’ll be adding more debt, which could be problematic and could put you at risk of getting into debt issues again that brought you to a consumer proposal in the first place. You’ll have to carefully weigh the benefits and risks associated with taking on more debt.
