mortgage approvedWhen will I be ready for a mortgage

Alexander wrote me a few days ago to ask if he can qualify for a new mortgage, given he completed a consumer proposal a few months ago. I asked him some questions and learned he is in his early fifties, he has excellent income and stable employment, but he has very little savings at the moment. I asked him to purchase a copy of his Equifax credit report online, and he sent it to me as a pdf file. His current score is 550.

I wrote Alex back to explain his options:

It will be September 2015 when all the derogatory information about your older credit facilities will finally drop off your credit report – they will start to fall off the end of this year and continue through early mid 2015.

The fact that you were in a proposal though will stay on your report till April 2017, but you are mostly doing the right things required to recover from a Consumer Proposal. Your car loan and Capital One card are both rebuilding your credit score. Another credit card of a similar size would help – but not essential if money is tight (there’s a fair chance it would have to be secured by your own money. )

I’d like you to avoid further inquiries on your credit history – in June of this year and previously in 2012 there were a number of inquiries related to car financing. All in all , your score and the overall picture is only going to get better over time. Time will be your friend as bad stuff falls off your report.

Today it is too premature to think you would qualify for a mortgage – unless you could put your hands on a down payment of at least 20%. As time goes by, that requirement could drop for you. In the extreme scenario, by April 2017 you could be considered an AAA client once again.

By spring 2015 you could perhaps qualify for a mortgage but I think you would still need a good size DP – not less than 10% and maybe as much as 20%. By the fourth quarter of 2015 you will have more possibilities open to you.

You have two challenges Alex – increasing your credit score AND saving up money for a down payment. As long as derogatory information shows on your credit history, it is unlikely you will get a 5% DP mortgage from anyone, and even 10% will be a challenge, though not impossible.

But you will get to where you want to go to – I am certain of that – maybe not as fast as you would like.

[notice]You would be surprised how soon some people are able to arrange a new mortgage after an event such as a consumer proposal, settlement, or personal bankruptcy. In Alex’s case, our hands are tied today because he has no down payment saved up yet.

The larger your down payment, the better your income, the more you can demonstrate you are responsible with new credit facilities, the faster you will be able to enjoy another mortgage – whether to buy a new home or to refinance your existing home.[/notice]

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