Published: May 27, 2020 • Last updated: April 10, 2021 at 9:46 am
Is There Any Set Waiting Period After Finishing A Consumer Proposal, or Can You Buy a New Home Right Away?
A consumer proposal is a strict, negotiated plan to pay back creditors over a set period of time, often for less than 100% of what is actually owed. Thankfully, Canada is a country of second chances and was it not for the legally sanctioned process of a consumer proposal, some might never be able to climb out from under a debt burden that exceeds their ability to pay it back.
It doesn’t matter how you managed to get in a pickle — whether you lost a job, had extraordinary medical bills, charged up too much too fast on your credit card, are having a difficult time balancing your budget after a marital breakup, a combination of these things or something else entirely. Our system says that everyone is afforded an opportunity to eliminate all their debts, and begin fresh!
How wonderful is that?!
Filing a consumer proposal is one of the officially sanctioned ways to reset your personal finances. Once your consumer proposal has been accepted and approved in court, you are well on your way to a second chance.
After the proposal is paid in full, many Canadians turn their attention to buying a home. Those who are already homeowners, often concern themselves with their upcoming mortgage renewal, or wonder whether or not a mortgage refinance is now possible.
This week’s question comes from Carlos, a potential first time homebuyer, who wrote to us as follows:
I paid off my consumer proposal in September 2019. My credit score at Trans Union Canada is 659. I do not know my Equifax Canada score. I have $25,000 in savings, and my car payments are $400 a month.
I live with my parents, and my wife is a stay at home mom to our young daughter. I am a mechanic good income of around $85,000 a year gross income. What are my chances to get a mortgage?
We want to buy a house for less than $500,000; a townhouse perhaps. Is there any chance I can get a mortgage with my status?
Let’s assess Carlos’s situation and see what is possible.
How Long Must He Wait After Completing The Consumer Proposal?
It is only eight months since Carlos’ proposal was completed. If he had at least a 20% down payment saved up, he might qualify immediately with a B-lender for a mortgage.
But in his case, with a minimum down payment of 5% of the purchase price, Carlos needs a mortgage with default mortgage insurance. (People call this CMHC insurance, though in fact there are three such insurers in Canada. Their qualification rules are all the same though.)
CMHC’s website does a good job of explaining this insurance.
If he wants to qualify for a mortgage to buy a new home, he will have to wait till at least the Fall of 2021. The insurers require at least two years elapse prior to allowing a hi-ratio mortgage.
What About Personal Credit History After A Consumer Proposal?
But let’s not stop there. It’s not just a matter of waiting for time to pass. Carlos is also going to have to work on rebuilding his personal credit history.
Mortgage lenders will want to see that Carlos has rebuilt his credit with at least two new credit facilities – credit cards ideally, from major banks or lenders. Car loans and leases help as well. So too do other loan products, but the bigger the name of the new credit issuers, the better his chances of approval.
There is a rough rule of thumb in the mortgage industry – we say you require at least two new credit facilities, for at least two years, with a limit of at least $2,000 per card.
This is a guideline, but it is not precise. And to be fair, right after a proposal is completed, it may be hard to secure a credit limit of at least $2,000. That’s fine. Even if a card starts off with a small limit of say $500, if that limit grows over time because the card issuer liked your usage and repayment patterns, then they will often offer a limit increase.
Your goal is to have the requisite limits in two years, not in two months!
Your Credit Score Matters If You Want a Mortgage After Consumer Proposal
After a consumer proposal is just completed, it is not uncommon to see a credit score in the range of 450 to 600. That is NOT going to cut it when it comes time to qualify for a new mortgage.
One reason the score is so low is there are almost always reporting errors in your personal credit report when you file a consumer proposal. And both Equifax and Trans Union are not going to address most of these mistakes (except the most egregious errors) till after your proposal is completed.After completing a consumer proposal, there are almost always serious errors on your credit report that drag down your credit score! #creditscore #consumerproposal Click To Tweet
Their errors can really drag down your score and hurt your chances of a future mortgage. They can also hurt your chances of securing decent credit cards or other loan products in your quest to rebuild your personal credit history.
Carlos should check his personal credit history online. He can subscribe to 30 days of free monitoring at Equifax Canada by subscribing to the Equifax Monitoring Service using this special link.
If he finds reporting errors, he can take steps to have Equifax Canada remove them. He must allow two to three months for this to get done correctly.
Our team has the ability to fast track an investigation with Equifax Canada and can remove all such reporting errors within just a few days of making the request.
“Ross Taylor is unquestionably the preeminent credit repair mortgage broker in Canada today. Ross’s expertise can help everyone who has concerns about their credit in their search for mortgage financing.”
Respected mortgage industry veteran, Founder of Butler Mortgage
It’s not only expertise Ross brings to the table. He has a genuine desire to help people get the best possible outcome and the patience to work with clients over the long haul and with complete honesty, If you have questions and concerns over your credit in your search for a mortgage just ASKROSS.
How Much Mortgage Does He Qualify For After His Consumer Proposal?
With $85,000 salary and a $400 car payment, Carlos would qualify for a mortgage of almost $400,000. If his wife goes back to work or if we include Child Tax Benefit Income, it would be a touch higher. This is not the $500,000 budget he was thinking of, but it is doable outside of the city core in a bedroom community like Hamilton or Cambridge for example.
If you ever want a very rough approximation of how much mortgage you qualify for, assume $100,000 of mortgage for every $20,000 of income.
Here is a summary of our guidance to Carlos, who now knows exactly where he stands in terms of being ready for homeownership. Carlos should:
- remain a tenant for the next year and a half
- save as much money as possible to be safely above the minimum 5% down payment required
- focus on building up his personal credit history.
Time will be his friend and by the Fall of 2021, he will be in excellent shape to buy a home.
Do you have a question about consumer proposals, managing your credit hygiene, or getting a mortgage that we can answer? Let us know how we can help. Click here to ASKROSS what’s on your mind.
- Why Your Credit Score Sucks After Filing a Consumer Proposal
- Good Credit Hygiene Saves over $100K on Typical Mortgage
- Using Home Equity to Pay Off Consumer Proposal Early
- Buying a Home After a Consumer Proposal
- How to Improve Credit Score in Canada: Tips, Myths, & Real Case Studies
- Five Tips to Increase Your Credit Score Quickly
- Getting a Mortgage After a Consumer Proposal
Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.
With unique dual certification as a licensed credit counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.
If you have questions about anything financial or mortgage-related, please contact [email protected]. Ross answers everyone personally.
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