Suppose you were in a consumer proposal and it’s now completely paid off. You have received your completion certificate from the trustee and now you want to buy a house, or perhaps refinance your current home. Will you qualify for a mortgage after you complete your consumer proposal?
Absolutely you can qualify for a mortgage now – the question is on what terms? And how soon after the consumer proposal is completed will you qualify for a mortgage?
Buying a home after a consumer proposal
Unless it has been at least two years since you paid off your consumer proposal, you will be working with a mortgage broker and talking to alternative lenders and private lenders. The banks are what we call “A lenders” and they do not offer mortgages to people in your situation.
You will be expected to put up at least 20% down payment towards the purchase.
When you buy a home and require a mortgage, your mortgage is either insured (by CMHC or an equivalent company) or it’s uninsured.
After completing a consumer proposal within the past two years, the reason you cannot buy with a smaller down payment is because such purchases are insured by CMHC, Genworth or Canada Guaranty, and their guidelines are really clear.
For CMHC etc. you need to be at least two years beyond your completion date, AND you need two separate tradelines (credit cards, personal loans, etc. reporting to the credit bureau), AND each of those should be with a limit of at least $2,000.
If you do have the requisite 20% (or more) down payment, you could conceivably get a mortgage the day after you pay off your consumer proposal. I have seen it happen!
When you are working with alternative lenders, you should know you are looking at a one time lender fee in every case. This is typically 1% of the loan amount. And as you will be working with a mortgage broker, there may be a one time brokerage too. Each broker sets their own fee schedule, ours are typically between 0.5% and 1% of the loan amount.
These fees you cannot really control.
The mortgage interest rate you get from an alternative lender can vary significantly. This year alone, we have arranged alternative mortgages as low as 3.65% and as high as 5.99%. All can come with a 30 year amortization though, which makes them more affordable than you might think.
If you want to keep the down payment small and your interest rate low, you need to make the best of your personal credit history. This means maximizing your personal credit score as high as possible, and ensuring it is as pretty as it possibly can be.
You cannot change history, but you may find that there are some reporting errors in your personal credit history, and that these are dragging down your personal credit score.
Sometimes these errors include late payments you did not in fact make, or balances owing on cards which were included in your consumer proposal.
Ask your mortgage broker for specific advice on how to maximize your personal credit score after you complete your consumer proposal.
How your credit score works after a consumer proposal
No matter how high your credit score was before you filed a consumer proposal, rest assured your credit score plummeted after your consumer proposal was on the record. Credit scores are a number in the range of 300 to 900. Canadians with a healthy credit score would be in the 700’s and 800’s. And many more would argue they are just fine thank you with a score in the 600’s.
But after filing a consumer proposal, I see most credit scores drop to anywhere between 450 and 550, and that is not going to attract very many lenders to support your mortgage application!
I have coached hundreds of clients to rebuild their credit after completing their consumer proposal. As a matter of fact, I actually own the trademarks Dr. Credit® and Doctor Credit® – issued by The Canadian Intellectual Property Office of Industry Canada with the federal government.
I have absolutely no doubt I can help anyone increase their personal credit score, and relatively quickly too. If you are in, or recently completed, a consumer proposal, you want to be sure you have at least two new credit facilities. Ones that you did not have when you filed the consumer proposal.
And you want all the reporting errors cleaned off your personal credit history.
In this way, and in properly managing your new credit cards to maximize your score, you will soon be in excellent shape to get a mortgage after your consumer proposal.
Are there mortgage lenders after a consumer proposal?
Absolutely there are many lenders your mortgage broker can work with after your consumer proposal. Private lenders are everywhere, so no problem there. Within the alternative lender market place, there are fifteen to twenty reputable, well known lenders, most of whom will be interested in your situation.
These are companies like B2B Bank, XMC Mortgage Corporation, Equitable Bank, Home Trust Company, Lendwise NPX, Street Capital Solutions, Optimum Mortgages, MCAP Eclipse, RMG Eclipse, Bridgewater Bank, Effort Trust, IC Savings, First National Excalibar, and Community Trust.
How a mortgage pre-approval works after a consumer proposal
A mortgage pre-approval is different after you have completed a consumer proposal. When working with “A lenders” such as the banks, your application is sent in to the underwriters and the lender issues you a pre-approval certificate which your real estate agent can take with them to help you source a property within your budget.
But when you are talking to alternative lenders, they do not issue pre-approval certificates. Nevertheless, we have no trouble packaging an application to our favourite lenders and asking their opinion. This usually leads to an unofficial offer of terms of a mortgage. They will indicate the approximate loan amount and interest rate they would offer our client.
It’s all subject to working with a formal application, with an Offer to Purchase and an MLS listing in hand, but even without that, it’s pretty reliable way to gauge how much mortgage you can borrow after a consumer proposal.
Keys to being approved for a mortgage after a consumer proposal
Being approved for a mortgage after a consumer proposal is surprisingly similar to being approved as a “regular borrower.”
Alternative and private lenders care about the same things the “ A lenders” do.
The property itself. They are looking for a property with good resale potential. They tend to avoid rural areas and small population towns and villages. There ARE lenders who will consider such properties, just only a few however.
Your down payment. The more the merrier. As mentioned, you should come to the table with at least 20% of the purchase price. And you may need more if you are buying a condo, or your credit score is low, or your home is in a lightly populated region.
Your income and employment. Yes this matters just as much to alternative or “B lenders”. One good thing is there are several “B lenders” who are totally open to working with self-employed borrowers, and commissioned sales people and people for whom there may be a cash component to their income.
Your personal credit score. The higher your score, and the cleaner your credit history looks, the more attractive will be the mortgage offers you receive. This is why I urge you to review your personal credit history upfront, ask Ross if you like, and make sure it is optimized as much as possible.
Your story. There were reasons you had to file a consumer proposal and no one is here to judge you. But we do need to know how it happened, and whether or not real estate was involved in your case. And was this the first time you were insolvent or have you run into trouble repeatedly?
The “mortgage stress test” still applies. Since January 01, 2018 all mortgage borrowers applications are looked at by adding 2% to the offered mortgage interest rate, and determining whether or not your income is enough to cover the higher payment.
The theory is that if rates should rise by the time your mortgage matures, your mortgage lender wants to know if you could handle that.
The good news is many alternative lenders allow a higher percentage of your income to cover your mortgage payment, taxes, heating and condo maintenance fees. And this can make the difference between qualifying for a mortgage or not. We have a few who will allow up to 50% Total Debt Service Ratio – whereas the “A lenders” might balk at anything over 44%.
Case Study – She bought a home right after she completed her consumer proposal
Gloria contacted our office earlier this year excited to buy a new home. She was then in the late stages of a consumer proposal, but she had recently inherited a decent amount of money which she wanted to use towards the down payment on a home purchase. She found AskRoss doing a Google search, and soon we were coaching her through the whole process.
We advised Gloria to pay off her consumer proposal immediately
As soon as her trustee gave her the consumer proposal completion certificate we prepared and sent a package to Equifax and Trans Union Canada asking them to update her credit history and clear up a few reporting errors.
Within a few business days, her personal credit score jumped from 587 to 676
Next we prepared a full mortgage application for Gloria and showed it to a few alternative lenders we thought would be interested in funding her purchase.
Sure enough, she found a home she liked and within two months of completing her proposal she was good to go for a mortgage on her new home purchase!
Refinancing your mortgage after a consumer proposal
Although this article is mainly about qualifying for a mortgage to buy a home after a consumer proposal, it is important to know you can refinance your current mortgage immediately after completing your consumer proposal. In fact, we have done many where we refinanced our clients’ mortgage IN ORDER TO PAY OFF THE CONSUMER PROPOSAL. It all happened on the same day!
Mortgage refinances are no longer insured by CMHC, Genworth or Canada Guaranty – regardless of whether or not you are working with an “A lender” or a “B lender”.
And all mortgage refinances need to leave at least 20% equity in the home after the refinance. In other words, the maximum loan to value ratio you can refinance your home to, even if you are THE PERFECT MORTGAGE APPLICANT, is still only 80% of the appraised value of your home.
If your situation is you have recently completed a consumer proposal, or would like to, then you could be eligible for a new mortgage immediately. Again, as with a home purchase, you will be working with a capable mortgage broker who deals with alternative lenders and private lenders.
And things will go the exact same way as I described above for someone buying a home after a consumer proposal.
Case Study – They refinanced their mortgage while they were in a consumer proposal
Lots of people don’t realize there are options in the midst of a consumer proposal. These homeowners asked Ross — all the way from BC — for some game changing, life altering results!
Jerome and Esmeralda spend almost $4,100 every month on their mortgage and consumer proposal payments. That’s a staggering amount for any family — and let’s not forget property taxes, utilities and some $12,000 in credit card debt with a minimum payment of $360 per month.
It feels like they have been in the “penalty box” forever — all a result of them taking a shot at owning a business which eventually failed four years ago.
Since then they have carried a $95,000 private second mortgage with monthly payments of $946, and in late 2013 they settled all their debts by filing a consumer proposal and agreeing to pay $1,250 every month for five years as restitution.
They both have decent jobs, but to spend $4,400 a month on their home and debt repayment is a bitter pill to swallow.
With the first mortgage maturing in early April, 2018, Jerome saw this as a chance to restructure their home financing, and potentially clean everything up once and for all.
He found us using Google Search and noticed we have written several articles about clients whose consumer proposals we have paid off early and helped reset their finances.
I love the fact this couple lives in British Columbia, and we are based in Toronto, and (a) they found us and (b) we came up with a great solution for them.
There was a lot of documentation needed up front, which Jerome quickly provided, using a secure folder in One Drive to share their private information with us a few thousand miles away.
They gave us their consent to access their personal credit histories, and unfortunately Esmeralda’s score was a very low 562.
We do not expect high scores when people are in a consumer proposal, but we do always look to see if there are any errors in the report which can be corrected immediately.
This would be essential here, because to pay off ALL their debt, we needed to come up with a brand new first mortgage of $525,000 — which is 80% of the value of their home. This would not be possible for applicants still in a consumer proposal with a score as low as 562.
Equifax agreed to some of the changes we proposed and as a result, Esmeralda’s credit score jumped up to 644, to go with Jerome’s 653. Not pretty, but respectable enough and now we had a fighting chance.
The fighting chance became a hard core reality!
In a result that blew even me away, we found a lender who agreed to the entire mortgage amount and offered a one year mortgage at an interest rate of only 3.65%!!
This mortgage closes in less than two weeks time. And their monthly mortgage payment will be only $2,394. This replaces $4,400 of mortgage, consumer proposal, and credit card debt payments.
Imagine how you would feel if someone waived their wand and you had $2,000 extra every month?
Pretty darn awesome — no doubt!
Everyone is beyond happy and so excited for Esmeralda and Jerome.
If you know a homeowner who seems to be in a real mess, tell them there is hope for a better way forward. We love to see our clients — quite literally — JUMPING FOR JOY.
Download helpful info HERE on multiple options you have as a homeowner in a consumer proposal.
Or just ASK ROSS…