We are most often told that a consumer proposal or bankruptcy can be considered as a second chance to get things done. It could be a fresh start for you. But what does that mean to you when you have to get a new mortgage or to renew an existing one.

Naturally, the question that we are all worried about is whether it is possible to get a mortgage after a consumer proposal or not? Let’s find it out together! 

Let’s suppose you had a consumer proposal but no you have completely paid it off. YOu have also received the completion certificate from the trustee and it’s time for you to buy a new house or refinance your current home. Will it be possible for you to qualify for a mortgage after completing the consumer proposal? 

The good news is that it can absolutely be the case. However, the thing that you have to be concerned with is on what terms it will.

Buying a home after a consumer proposal

The first thing to remember is that it will be possible for you to work with a mortgage broker, an alternative lender or a private lender only after two years when you are done with paying off your consumer proposal.  Most importantly. It will be even harder to apply for a mortgage in banks, as they most often refuse people with consumer proposals. 

It’s probable that you will be required to put up at least a 20% down payment towards the purchase.

WHY?

Of course, it’s natural to ask why is this the case. To understand the reason you have to know that when you require a mortgage of buying a house it should be either insured or uninsured (mainly by CMHC or an equivalent company). 

The primary reason you cannot take a mortgage within a similar down payment after paying off your consumer proposal in the past two years is that these types of [urchases are insured by CMHC, Genworth or Canada Guaranty, which have very clear guidelines. 

This means, specifically for CMHC you at least need to be two years  above your completion date and you need to have two distinct tradelines (personal loans, credit cards, etc. reporting to the credit bureau.) Take into consideration that those have to be in the limit of at least $2,000. 

WHEN?

Another important thing to consider when you are working with an alternative lender is that you will have a one-time lender fee in every case. Typically, it will 1% of the general loan amount. At the time, considering the fact that you will also be working with a mortgage broker, there could as well be one-time brokerage too. In this scenario, take into account that every broker usually sets their own fee schedule by themselves. 

Simultaneously, the interest rate for a mortgage you are getting may very notably when you are working with an alternative lender.  Those could be as low as 3.65% or as high as 5.99%. All of them come with around 30 years of amortization, which will make it more affordable than you think.  

In case you really want to keep your interest rate low and your down payment small, you need to work hard to keep good personal credit history. This on its turn means that your personal credit score should be as high as possible.

Mortgage pre-approval after a consumer proposal

Take into consideration that the process of mortgage pre-approval is different after a consumer proposal. When you are working with let’s say a bank, your application is sent to the underwriters. At the same time the lender issues you a pre-approval certificate, which in order to help you source a budget-friendly property for you, your estate agent can take with them. 

This is not the case when working with an alternative lender. They do not issue a pre-approval certificate. At the same time, it’s all about working with a formal application, with an Offer to Purchase and an MLS listing in hand. Anyways, even without that, it’s pretty easy to measure how much you can borrow for your mortgage after a consumer proposal.

Key aspects of being approved! 

You may stress about a lot about being approved for a mortgage after a consumer proposal, but the relatively good news is that it is quite similar to being approved for a mortgage as a “regular” borrower. 

Similar to alternative lenders, banks are also looking for properties with good resale potential. Mostly they are trying to avoid small towns and villages with a small population and rural areas. However, there still are some lenders who will be open to considering such properties, just fewer ones. 

As far as for your down payment, as mentioned earlier you should be ready to come for a deal with 20% of the purchase price. At the same time, be prepared to pay even more in case your home is in a relatively populated region, or in case your credit score is low. 

When it comes to your personal credit score, the higher it is and the cleaner credit history you have the better, as there will be more opportunities with attractive mortgage offers. That is why it is highly important to take attentive action on improving and keeping your good credit line history.

Here are some additional helpful tips on how you can get the best deal of all: 

1. pay all your monthly obligations religiously,
2. pay off the consumer proposal as quickly as possible,
3. clear off any lingering collections or unpaid debts,
4. beef up your down payment,
5. make your credit perfect,
6. be open to alternative lenders,
7. get advice from a mortgage broker.

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