Buying a home after a consumer proposal. We’re told that a consumer proposal or bankruptcy gives us a second chance to get things right. A fresh start.
But what does that mean when it comes to buying a home? Will you qualify for a mortgage after you complete a consumer proposal?
We received an email from Jared in this exact situation. He wrote:
Can you please advise me on my situation. I filed a consumer proposal in November 2015, and I paid it off quickly in February 2016 and now I want to buy a condo for $300,000. Condo fees and property taxes are $250 and $150 per month. I have $30,000 for the down payment.
It is really great Jared paid his proposal off so quickly; this is the first step towards rebuilding his personal finances. Some people can qualify for a mortgage immediately with alternative lenders (such as Equitable Bank, XCEED or HomeTrust Company), but that is NOT the case in his situation. He would likely need a down-payment of at least 25% to merit consideration.
Jared states he is looking for best interest rates – those of an ” A lender”. That is not going to happen if he plans to include himself on the mortgage application. Jared is correct he cannot do this on his own.
Here are the credit factors “A lenders” look at:
- Has Jared proven he can manage new credit facilities since he entered his consumer proposal? No he has not. In fact he has no new credit since filing., A rough rule of thumb for “A lenders” is they want to see at least two new facilities, serviced without blemish for at least two years; and with borrowing limits of at least $2,000.
- What is his credit score? Whether they look at TransUnion, where Jared’s score is only 524, or Equifax, clearly his score is way below being acceptable. 650 is a threshold many lenders use, and the higher the better.
- What were the reasons he had to file a consumer proposal, and was real estate involved?
- Was he a good citizen who just hit a bump in the road, or was he an ingrate who wantonly abused his credit privileges?
Jared is very fortunate his sister is willing to step up and help anyway she can. This can work, but not quite the way he wants it to. Jared’s name on this application is going to weaken it to the point where they would not be approved by an “A lender”. I suggested he ask his sister to buy the home in her own name only.
She is debt free and owns her own home with no mortgage. Assuming she has enough income to service Jared’s new condo mortgage, as well as the property tax and heating costs of her own home, she should be good to go – with absolute lowest rates and best terms.
How does this help Jared? Well he can move into the home immediately and agree to pay ALL monthly costs associated with his sister’s new mortgage. Take two to three years to re-establish his credit history.
When the time comes that he is strong enough for consideration, they could apply to his sister’s mortgage lender for him to assume (take over) the mortgage and title to the condo.
This can definitely work. I suggested they consult a real estate lawyer about structuring things upfront to reduce the chance of paying land transfer taxes twice and to review other personal income tax considerations for his sister.
To solve problems like this requires a deep understanding not only of the mortgage industry, but also about credit histories and rebuilding credit. You need to look for solutions which do not involve your bank, since they will not be able to help.
How to rebuild your credit history quickly – download free information
Apply for an unsecured credit card even if you are in a consumer proposal or bankruptcy