Consumer Proposal can de-rail a pre approved mortgage
Today’s question came from a reader in Alberta who is currently in a consumer proposal and also wants to buy a new home.
“I moved to Alberta in 2007 for a family crisis and have had some personal hurdles to overcome in regards to employment – as a result, I incurred a high debt ratio, and have been working to improve the situation. One of the steps that I took was to try consolidating my debt into one large loan. I approached private lenders, the Royal Bank and Tangerine but no one was able to consolidate.
As a result, I was making the minimum monthly payments, but was not reducing the debt owed. I then went to a credit counselor and was advised to make a consumer proposal. This is the option that I took. In May of this year I found myself unemployed again, and as this was a small community with very few jobs. I realized I should move to a larger center to find employment, and am currently working on a contract.
In preparation, I spoke to Tangerine (my mortgage lender) about selling my home and porting my mortgage, and they were onside. I did all of the background exchange with Tangerine and told them I had a consumer proposal. Nothing was said regarding this information. I obtained a pre-approved mortgage from Tangerine, and went looking for a place to buy. I found a home, put $1,000 down but later when I formally applied to port my mortgage, I was denied due to the consumer proposal and the fact I had applied for a consolidation loan a year earlier and was turned down.
This is now my situation – I have no home as mine has been sold, I have no new place to move into because my port was denied, I have lost $1,000. My question to you is what do I do now, I have three weeks to move! Your prompt reply would be appreciated.”
It sounds like you were dealing with mortgage servicing staff, as apparently no one seemed to realize that with your proposal you are a special case. Had an actual underwriter been given all these facts upfront, she almost certainly would have denied the port – but at least before you wasted your $1,000 and got your hopes up.
As long as you still have a balance owing on your proposal, your options are extremely limited. No lender will lend you a mortgage while you still have that debt. Perhaps there is enough equity to pay off your proposal when your house sells and retain a significant portion for a down payment on a new home?
Even if so, it’s a very tight timetable and your situation would kibosh most lenders other than private lenders. If a private lender was willing to work with you, you’d be looking at a first mortgage rate of around 7%, maybe more, and a whole bunch of one time fees.
The Short Term Solution While You’re In a Consumer Proposal
I’m happy to give more info about settling your proposal, but in my opinion, the practical near term solution to your circumstances is to arrange rental accommodations – given your credit status you should probably offer at least a few month’s rent upfront.
Although this is a very special case, the underlying message is one for everyone seeking a pre-approval before buying a new home. Most of the time your request will not go through a formal underwriting process. Only if a specific request for full underwriting is made, and all documentation provided upfront, will you be on more solid ground. And even then, the pre-approval may not protect you from changing personal circumstances, nor does it automatically approve the actual property you then try to purchase.
- Getting a Mortgage After a Consumer Proposal
- Is Mortgage Pre-Approval Worth It?
- Why Your Credit History Sucks After a Consumer Proposal, and What You Can Do About It
- Will a Pre-Approval Affect My Credit Score?
- How Long Do You Have To Wait After Completing a Consumer Proposal Before Buying a House or Condo?