can you purchase a house after a consumer proposal

Can You Qualify For A Mortgage After A Consumer Proposal?

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.

Maybe you wish to buy a home, or you own a home and are interested in refinancing your mortgage. Let’s first talk about purchasing a home.

When Can You Buy A Home After A Consumer Proposal?

Actually, this question comes up often. People want to know how soon can they buy. Sometimes they ask right after they file their consumer proposal, and other times it’s more than five years later, after they’ve paid it off in full.

First things first: pay off your consumer proposal completely before you take on major new 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! As in, immediately.

Alternative lender adviceYou will almost always be working with either a B-lender or a private lender, but it is doable. But it’s more than just a matter of having finished your consumer proposal. Make sure you have been rebuilding your personal credit historywith new credit facilities and by cleaning up reporting errors. (There are ALWAYS reporting errors after you file a consumer proposal.)

If you have less than 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. But it’s best if you have at least two tradelines (credit card, loan, line of credit, etc.) with limits greater than $2,000.

Worst case scenario, 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 we all face.

When Can You Refinance Your Home After A Consumer Proposal?

This, too, can happen very quicklyin fact, we have helped numerous homeowners refinance their homes so they could complete their consumer proposal early. In some cases, it was as soon as the terms of their proposal were ratified in court.

This is what we call a lump-sum consumer proposal, and can be a very attractive way to settle your debts if you are a homeowner.

Should You Pay Off Your Consumer Proposal When You Refinance?

Actually, there are a few private lenders who will allow you to leave your proposal unpaid while you extract equity from your home. But unless there are specific, logical reasons to doing this, it’s not something I recommend.

refinancing to pay off a consumer proposalI prefer refinancing to completely pay off the remaining balance owing on the consumer proposal. There may also be other things you need money for at the same timelike a home improvement project or a child’s higher education, or other family debts.

CRA debt crops up quite a lot too, particularly for those who are self-employed. You can take care of all these at the same time, provided you pay off the consumer proposal.

Why Would You Pay off Your Consumer Proposal Early?

1) Fear of the mortgage renewal. This concern is very real if your mortgage lender had a credit card or loan product included in your consumer proposal. They might have no interest in offering you a renewal when your current mortgage matures. So, you need to get in front of this issue as soon as you can, if your situation allows for it.

2) A strong desire to rebuild your personal credit history. Once you file your CP, your credit score is going to take a major beating. All debts included in the proposal will be reporting as R7s on your personal credit report.

Worse than that, some of them will be erroneously reporting as R9swritten off completely.

confused mortgage consumerAnd some credit cards may say they were included in a bankruptcy, even though that is not true.

A few credit cards even report ongoing late payments after the proposal was filed. And sometimes even after the proposal is completed!

If you want to fix the damage to your personal credit report resulting from your consumer proposal, you are going to have to wait until it is paid in full and you have a completion certificate from your trustee. Here is additional information on rebuilding credit after a consumer proposal.

3) Wish to be normal. When you have bad credit, everything in life seems tougher and more expensive. Even if you wish to rent a home, not buy one, the landlord will usually ask for a copy of your credit report.

And if you want a new smartphone, or lease or finance a new car, bad credit will make it all that much harder.

If you allow your consumer proposal to run the full five years, that means it could be in your credit history six years altogether. It falls off three years after you complete, so keep that in mind. You can significantly shorten the waiting time by paying the consumer proposal off early.

4) Improve cash flow. In nearly all cases when we refinance a home where the owner is paying off a consumer proposal, they see an improvement in their monthly cash outflows. In a society where half of us are living paycheque to paycheque, this is attractive.

How Do You Refinance To Pay Off A Consumer Proposal?

First, your mortgage broker will do a thorough assessment of whether or not this is even doable. They will assess the marketability of your property, the amount of untapped equity, the reasons behind you filing your consumer proposal, as well as all the normal stuff lenders look at when reviewing a mortgage application.

An important consideration is your current first mortgage. Was it just renewed, or is it nearing maturity? Which lender is it with, and what might the prepayment penalty be if you were to break it and refinance to a new first mortgage with a B-lender?

Plan BAnother consideration is whether or not your first mortgage is registered as a collateral charge, and if so, to what amount is it registered? We wrote about this a few months agoit can make things difficult.

If refinancing the current mortgage makes sense, your broker will present your application and a presentation to the B-lenders most likely to entertain a file like yours. And they will bring back quotes for your consideration. If you choose to proceed, most of the time the entire process can be wrapped up in four to six weeks.

We actually see that happen less often than the other approach, which is to first apply for a private second mortgage.

In this scenario, the first mortgage is left intact and a new lender is found who will lend enough money to cover the proposal balance, any other debts and needs, and all the expenses associated with the mortgage.

During the term of the second mortgage (usually one year), we take the opportunity to cleanse all the reporting errors from the credit report, and also to strengthen the borrower’s credit profile with new healthy credit.

After a year (longer if that makes sense), we then refinance the two mortgages into a single first mortgage.

It would be normal to expect this new replacement mortgage to be with a B-lender, since the consumer proposal is still fairly fresh. Here are some insights into how to do this.

The Wrap

Ultimately, the goal is to take the homeowners back to the world of A-lenders. That is usually possible after three years, but we have seen instances where it happened much sooner.

But it was never going to happen if the clients didn’t first make the decision to pay off the consumer proposal ahead of schedule.

  1. This is great information that I think is very useful, not only for people going through Consumer Proposal, but also people who overspend to help them understand the ramifications of a Consumer Proposal.

    Great read!

  2. We just paid off our consumer proposal (early). We are debating selling our house and purchasing a new one. We have approximately $90,000 in equity in our existing home which we would use as the down payment for a new house. We are being told by our mortgage broker that we need a 35% down payment. That seems unusually high. Do you know of lenders who would reduce the down payment requirement from 35%?

    1. Hi Kim,

      It depends on your location, the type of property, and to what extent you have rebuilt your personal credit history since filing your consumer proposal. We have been successful arranging mortgages for a purchase with a down payment as low as 25%, even 20% pre COVID-19 times

  3. I have a mobile home in Alberta valued around 110,000 with owned lot- I have a consumer proposal that I’m going to pay in full this month. I have a mtg with $56+ owing and a Citifinancial 2nd mtg with approx balance owing of 18,000-20,000 which I just can’t make a dent in. I really want to get these 2 combined
    Is this doable?
    The interest rates of the 2nd mtg obviously are higher whereas my primary mtg rate is 3.19 but no one wants to touch a high finance company- at least not the top 5 chartered like BNS where mine is

    1. Hi Danita, I think it is going to be very hard to refinance your home until the proposal falls off your personal credit report. Mobile homes are tough to finance and so are former consumer proposal applicants. The two together make it almost insoluble.

      Sorry, I wish I had better news!

  4. My husband and I want to buy a house he went thru a bankruptcy in 2018 and I a proposal. Both have been discharged in 2019. We sold our home in 2017 and now are hoping to buy a 399k home with 5 per cent down. I know my credit score is 682. Do we have a shot ? Should we do rent to own ?

    1. Andrea you may have a shot – it depends when in 2019 you both completed your insolvencies and also on what kind of re-established credit you now have. For a high-ratio insured mortgage, lenders are going to want to see at least two years new credit facilities – ideally two or more with a value of at least $2,000 each.

  5. Hey there, I completed my Consumer proposal 3 years early in July 2020. We have about $200,000K equity in our home. My credit is slowly building back up (680 mark). I have a couple of new credit lines (credit cards) with limits of $5200 and $3000 and have managed to use and keep balance at nearly 0$ on both. My mortgage renewal is coming up in October and id like to take out the equity in my home? Any chance of that after only a year and change of being out of the proposal?

  6. Hello Ross,
    I filed a consumer proposal in Feb 2020. My wife and I own a condo for approx $490k market value (could be a bit higher given the recent sales in the building – equity approx $150k). We are now looking to sell the condo, pay off the consumer proposal and get a bigger house. what is the get way to go about that? should we contact our bank or a mortgage broker? will we need a 20% down payment? our mortgage is maturing in July 2022.

    1. I like your plan Camille, and yes if you do plan to buy a house within two years of completing the consumer proposal, you will need at least a 20% down payment and you will be working with alternative lenders.

      Keep in mind 20% is an absolute minimum. It could be more depending on the location and type of your property, as well as other things like re-established credit, income and employment.

  7. Hi, my husband went through a consumer proposal 6 years ago and he paid it off 4 years ago.
    We’re wanting to buy our first home and have more then 20% down on a $150, 000 home. His credit is much better and we don’t have any debt.
    We’re a one income household as I’m at home with our baby.
    We’re in the process of talking to a lender but 2 banks have rejected us because of the consumer proposal.
    I’m just wondering what we can do to help our chances?

    1. Four years after completion, there should be no evidence of your husband’s consumer proposal on his personal credit report Tina. This sort of reporting error can be removed by requesting the credit bureaus investigate and remove. That should help. If you need assistance with this, Richard Moxley is excellent. Here is his website

  8. Hello Ross,
    My wife and I have $6k remaining on a Consumer Proposal established in 2018. We have $18k in savings and were planning to pay off the CP but we now need $16-20k for roof repairs and ceiling repairs due to leaks. Our home has a $362k mortgage and the last appraisal that we paid for in 2018 was $600,000. My wife has a $50k job and I’ve just been hired for a job in the $45k but is variable and not salaried.
    Is it better to pay off the CP and get a 2nd mortgage to cover the roof/ceiling repairs or get a 2nd mortgage and keep the CP intact?
    Thank you!

    1. Hi Chris you can actually do both – pay off the proposal and pay for your repairs – and quite likely hang on to most of your savings too.

      Second mortgages incur one time fees which likely won’t vary much whether you borrow $25,000 or $50,000.

      You have sufficient equity in your home that you should be attractive borrowing candidates for many private lenders, though some might insist you pay off your consumer proposal at the same time because that gives you a clearer “ exit strategy”.

      Feel free to contact me if you would like to learn more.

  9. Hi Ross,

    Do I file for a Consumer Proposal (CP) or Pay it down brick by brick?

    I am a new father of 2 and trying my best to take control of our family’s finances. I am struggling but finding ways to make it work (barely). I am the sole income provider currently employed full time making $100k annually while living in Vancouver, BC. We rent a lovely little house but have outgrown it quickly. We are currently seeking relocation to the Calgary area for a number of reasons – the first being affordability. I would LOVE to buy a home but I am unsure of the decision to either buy/rent. Maybe you can shed some light on a path forward for us?

    Here are the details:

    I owe roughly $45,000 and have poor credit (678). I have spoken to an accounting service that has walked me through the pros and cons of CP’s but I still continue to sway back and forth from making a decision. My owing amount would be cut down to roughly $11,000 but my credit would take another large hit and include a small black mark for 3 years or more. Sure I can pay it off, build it up again, and go through the process of “starting over” but my desire to be out from under another landlord is distracting me from making a decision, and for reasons that I can’t even answer because I don’t know what I should do. I want a home, I want one bad. Can you provide any insight into what my future path should look like given what I want and what is realistic?

    Thank you soo much in advance,

    1. Thanks for detailing your situation Jerry. If you owe $45,000 I am going to presume you do not have any savings to be used towards a down payment and closing costs. So the challenge facing you is to both eliminate the debt and also save up some money. A new home costing $500,000 will require you to have at least $32,500 in hand for closing costs and minimum down payment.

      So that makes you almost $80,000 away from your goal. And those are after tax dollars.

      I don’t see it’s possible for you to accumulate $80,000 in anything less than five years.

      Filing a consumer proposal will reduce the debt load, but will also eliminate home ownership till at least two years AFTER you pay off the proposal.

      Long way of saying unless there is some major family financial assistance coming your way, you are not going to be owning a home anytime soon whether you file the proposal or not.

      If you accept that as a fact, then your next steps might be practical based on what approach gets you the biggest “bang for your dollar”

      But my own view is you will probably be best off filing a consumer proposal now and do your darnedest to pay it off as quickly as you can. Do not wait out the full five years. In fact, a consumer proposal offers you a great shot to wipe the slate clean pretty much 3 years and 3 months after you file it – if you find a way to pay the whole $11K off in full immediately after the proposal is approved in court. Maybe a family member would loan you the $11,000 to pay it off quickly.

      Once it’s paid off, you should immediately get to work on clearing up reporting errors and re-establishing new credit facilities. And in three years, the proposal will drop off your credit history. If you are concurrently saving, you will be well on your way to home ownership.

      Meantime, live frugally and rent your family home. Good luck!

  10. Hi there Ross, wouldn’t mind your opinion on my current situation. I completed my consumer proposal in August 2020 and have been rebuilding my credit for several years now. I’m currently at a rating of 613 (although there were reporting errors that are in process of being cleared up so that should go up a bit once that’s sorted out).

    I have about $600 000 for a down payment available for a home purchase, however in the market where I live I’ll still need a mortgage of about $200k-$300k in order to purchase a home (average cost of a single family home is close to a million around here).

    Curious if you think I’m in decent shape to get a mortgage of that size? I’m hopeful I’ll be able to as I’ll have a 60%-70% down payment available.

    1. Hi Bryce, yes I definitely feel you are in strong shape to secure a decent mortgage. You did not say if you have an income, and what it is?

      But anyway, we would get your FICO score at Equifax over 680 very quickly and then look at a mortgage with a B-lender at a rate potentially as low as 2.59%.

      Feel free to contact me to discuss further.

  11. Hi Ross,

    I am currently in a CP, hoping to pay it off in another year. I current have a secured credit card to rebuild my credit. Do you have any suggestion on anything else I can do help my credit score? I really want to purchase a house with my sister after I pay off the CP.

    1. Hi Denise, unfortunately there is not much you can do for your personal credit history while you are still in the proposal. The magic happens once it is paid off. Then you can remove reporting errors, boost your score, and really rebuild your credit.

      For now, you might try to get a second credit card – as two are better than one. If you have not already applied, you might try for the Capital One Guaranteed Secured Credit Card

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