Can You Qualify For a Mortgage While in a Consumer Proposal?

Can You Qualify For a Mortgage While in a Consumer Proposal?

Written by Marble
Fact-checked by Caitlin Wood
Last Updated January 22, 2021

It’s clear that debt plays a huge role in the lives of many Canadians. But for some, a large debt load may get too much and leave you searching for options such as a consumer proposal or bankruptcy. After filing for a consumer proposal, the last thing on your mind might be a new mortgage. But it’s important to research your options and prepare for your financial future. 

Many Canadians are in debt. According to Statscan, Canadians owed $2.3 trillion at the end of June, which consists of $1.5 trillion worth of mortgages, and $779.4 billion worth of consumer debt such as credit cards. This also follows credit rating agency Equifax Canada saying that total consumer debt increased 2.8 percent to $1.99 trillion in the second quarter amid a strong recovery in the housing market. If your debt load is getting too much, you may then consider a consumer proposal. And in Canada, many people are wondering whether if and when they enter one, how it will affect their chances for mortgage approval. Let’s learn more.

What is a Consumer Proposal?

In short, a consumer proposal is a legally binding agreement between you and your creditors to repay some or all of your debt. You work with a Licensed Insolvency Trustee to create one debt relief proposal for all of your creditors. The creditors then have to vote on it and the majority of them must agree to your terms.

If the majority of your creditors vote to accept your consumer proposal, all of your eligible debt now boils down to one monthly payment for an agreed-upon amount of time, which can be up to five years. From then onward, you only communicate and work with your trustee, not your creditors and collections agencies. Likewise, unlike bankruptcy, you can pay your entire consumer proposal debt early if you can and want to. 

If they do not accept your terms, then you must file for bankruptcy. Likewise, in order to qualify for a consumer proposal, your debt must be unsecured (that is, not tied to an asset like a house or car) and be between $1,000 and $250,000. As we said, the choice is not always in your hands when it comes to a consumer proposal versus bankruptcy in Canada.

How to Know if You’re Eligible For a Consumer Proposal?

A consumer proposal can be helpful for many reasons. It can help borrowers who are in unhealthy debt situations as a last resort before resorting to bankruptcy. In addition, it will have an effect on your financial life. Remember, consumer proposals are not right for everyone. It’s important to weigh up the pro’s and con’s of a consumer proposal, comparing them to your financial plans. This way, you can get a better picture of how it may affect your future. 

Firstly, to qualify, you will need to have a maximum of $250,000 worth of debt for a single person and $500,000 between you and your partner/spouse. With this, it’s important to know that only certain types of debt qualify. For example, credit card bills or lines of credit. Likewise, you must also demonstrate to your Licescened Insolvency Trustee that there’s no way you can pay off your debts. This is an important term to consider when applying for a consumer proposal.

Will a Consumer Proposal Affect Your Credit Score?

When you’ve entered a consumer proposal, it’s important to note that it will drastically affect your credit score. While a consumer proposal will help get rid of the majority of your debt problems, it will have a lasting effect on your score. Since your credit score is a reflection of your credit report, your credit rating will drop to an R7 status. This is the lowest rating to have besides repossession and bankruptcy. Due to this low credit rating, your score will now reflect this and drop accordingly.

Don’t worry, your credit score won’t be damaged forever. Generally, the R7 status will be on your credit report for three to seven years after you finish your consumer proposal. After this, you can then begin rebuilding your credit score over-time by avoiding missing or making late payments.

Will a Consumer Proposal Affect Mortgage Renewal? 

You’ve worked hard to get your home and now you’re wondering how will a consumer proposal affect my mortgage renewal? This is a common question among many homeowners when faced with a consumer proposal. Your home is one of the most valuable items you own and losing that would be devasting.

Firstly, it’s important to remember that if you’ve recently entered a consumer proposal, you’re considered a credit risk. Whereas you may finish your proposal, but that does not erase your history of paying debts. Because of this, most lenders will not likely finance a mortgage until you’re at least two years with a clean history following the end of a consumer proposal. However, to have a chance for approval, you will need a 20% down payment and paperwork that demonstrates they have been working on rebuilding their credit.

If you’re in this situation, it’s important to research for an alternative lender. At times, some lenders will look more into details such as personal characteristics and someone’s unique circumstances, as well as the numbers. Alternative lenders will look at your specific situation and assess the risk while in a consumer proposal.

How Long After a Consumer Proposal Can Clients Expect to Get a Mortgage? 

If you’re in the process of getting your finances back on track, you may also be wondering how long you need to wait after a consumer proposal to get a mortgage. However, this often differs from lender to lender. Traditional lenders are unlikely to consider a new mortgage until your credit is back within a normal credit range. As mentioned, alternative lenders are more willing to work with you to help them move forward.

On the other hand, you can still apply for a mortgage at any time, even while you’re in the middle of a consumer proposal. But the lender is still going to look at creditworthiness and require documentation. It’s important to remember, if mortgage financing or renewal refinancing is approved, you will be asked to use the proceeds to pay out the consumer proposal.

The Bottom Line

Without question, it’s easier to get into debt than to get out. A consumer proposal may be the answer for someone who is committed to better managing debt in the future. A consumer proposal does not mean always mean your bad credit risk. This is why some lenders may look at other factors too, since someone who lost their job, racking up too much debt just to live, and now has a new job might be someone worth taking a risk on.

Written by Grace Gearon from Marble Financial | Contributing Writer for Loans Canada


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Marble is a financial technology company on a mission to help Canadians learn to better manage their personal finances and build better credit. Through socially responsible lending practices, like their Fast Track Loan and Score-Up credit building product, Marble has allowed thousands of consumer take back control of their finances.

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