You’re in A Mortgage Consumer Proposal, Now What?

Sometimes no matter how much we plan and prepare, life still does not go accordingly. This is why we have financial resources to help us get back on our feet.

Remember that there are no quick fixes to get back on track. Every situation is unique, so make sure you have the right knowledge and resources – really get to know how the mortgage and credit world works, and use a mortgage planner along with your trustee or debt counsellor to set up a plan of action that works for you.

Here’s a guide on how to qualify for a mortgage after the consumer proposal.

There are 3 main factors that banks look at when deciding if a mortgage will be granted to a consumer:

1. Income of the household
2. Debt-to-income ratio
3. Credit score

For those currently in consumer proposal:

• You can refinance your home when in a consumer proposal and pay it out. You need more than 20% equity to do this.
• If you choose an INSURED mortgage (i.e. 5 – 20% down) then you must be discharged from consumer proposal for two years and your credit has to be re-established.
• Most lenders want the consumer proposal paid in full prior to mortgage approval. Very few will look at your deal while in proposal.
• Approvals are area-dependent – Fort McMurray or small rural communities are harder to get mortgage approvals.
• Don’t be house rich and cash poor. Plan to have savings that are more than just your down payment if you are buying.
• Make sure to remove your consumer proposal from credit bureau after you have made your last payment, or else it will keep hurting your credit score.

Rebuilding your credit.

Start rebuilding your credit as soon as you file your consumer proposal. You need to aim for TWO credit cards, open for TWO years, with an eventual available credit of $2500 each. Click here for a list of applicable credit cards.

Lenders use a method called the 5 C’s of credit to determine the credit worthiness of potential borrowers. It attempts to gauge the chance of default or the borrower being a chronic mismanager of debts. The 5 C’s assess your situation, who you are, why you had issues, and what you have done to improve the situation.

1. Character – When lenders evaluate character, they look at stability: how long have you lived at your current address? How long have you been in your current job? Do you have a good record of paying your bills on time and in full? If you want a loan for your business, the lender may consider your experience and track record in your business and industry to evaluate how trustworthy you are to repay.
2. Capacity – This includes your other debts and expenses. Creditors evaluate your debt-to-income ratio (how much you owe compared to how much you earn). The lower your ratio, the more confident creditors will be in your capability to repay the money you borrow.
3. Capital – This is your net worth: the value of your assets minus your liabilities. In layman’s terms, how much you own (e.g., car, real estate, cash, and investments) minus how much you owe.
4. Collateral – In the case the borrower is unable to fulfill the loan payments, a lender has the right to take ownership of assets of the borrower (such as a home), as previously agreed by both parties. Some lenders may require a guarantee in addition to collateral. This means that another person signs a document promising to repay the loan if you can’t.
5. Conditions – Lenders consider a number of outside circumstances that may affect the borrower’s financial situation and ability to repay, such as what’s happening in the local economy. If the borrower is a business, the lender may evaluate the financial health of the borrower’s industry, local market, and competition.

Qualifying for a mortgage post consumer proposal may seem difficult, but it all starts with having the right knowledge and the right resources.

If you are looking to rebuild your credit or consolidate your debt, give us a call at ACLending Group – our mortgage experts would be happy to help. (403) 831-7869

Original Post: 

KIKI BERG

Dominion Lending Centres – Accredited Mortgage Professional 

Kiki is part of DLC Hilltop Financial based in Langley, BC.