Securing a Mortgage After Undertaking a Consumer Proposal
The process of obtaining a mortgage after a consumer proposal can be daunting. However, it’s not an impossible task. This article aims to shed light on how a consumer proposal impacts your ability to secure a mortgage and the steps you can take to improve your chances.
What is a Consumer Proposal?
A consumer proposal is a formal, legally binding process that is administered by a Licensed Insolvency Trustee (LIT). In this process, the LIT will work with you to develop a “proposal”—an offer to pay creditors a percentage of what is owed to them, or extend the time you have to pay off the debts, or both.
A consumer proposal is an effective method of debt relief, especially for those who do not qualify for a debt consolidation loan and want to avoid bankruptcy. It offers a way to protect your assets, such as your home and car, while you work through your financial difficulties.
Impact of a Consumer Proposal on Your Credit Rating
A consumer proposal does affect your credit rating. It’s considered an R7 rating, which indicates that you are making regular payments through a special arrangement to settle your debts. This rating stays on your credit report for three years after the completion of the consumer proposal.
However, the impact on your credit rating should not deter you from considering a consumer proposal if you’re struggling with debt. It’s a step towards debt relief that can provide you with the financial fresh start you need.
How a Consumer Proposal Affects Current Homeowners
For homeowners, a consumer proposal can be a source of relief. When you file a consumer proposal, your assets, including your home, do not become part of the proposal. This means, as long as you continue to make mortgage payments, you can keep your home.
Getting a Mortgage After a Consumer Proposal
Securing a mortgage after a consumer proposal is not impossible, but it does require strategic planning and effort.
After completing a consumer proposal, your focus should be on rebuilding your credit history and score. However, traditional lenders may require a waiting period of about two years of clean credit history before they will consider your mortgage application.
This period allows you to demonstrate to lenders that you have become creditworthy again. But remember, even if you have waited two years, you will likely need a significant down payment and proof of stable income.
Tips to Improve Your Mortgage Approval Chances Post Consumer Proposal
Here are some ways to increase your chances of securing a mortgage after a consumer proposal:
- Rebuild Your Credit: Apply for a secured credit card or a low-limit credit card. Make small purchases and pay the balance in full each month. This regular activity will show lenders that you are capable of managing credit responsibly.
- Save for a Down Payment: A larger down payment reduces the lender’s risk and makes them more likely to approve your application. Aim to save at least 20% of the purchase price.
- Maintain Steady Employment: A stable employment history and income are important factors that lenders consider when assessing mortgage applications.
- Pay All Bills on Time: This includes utility bills, rent, and any other financial obligations. Late payments can negatively impact your credit score.
- Check Your Credit Report: Regularly review your credit report to ensure it’s accurate. Dispute any errors you find with the credit bureau.
Refinancing Your Mortgage to Pay Off Your Consumer Proposal
Refinancing your current mortgage can be a way to pay off your consumer proposal early. If you have sufficient equity in your home, you may be able to secure a larger mortgage to cover both your property and the balance of your proposal.
However, refinancing comes with potential risks and costs. For instance, you may face penalties for breaking your current mortgage early. Also, the interest rate on the new mortgage could be higher than your current rate.
Importance of Professional Guidance
Before making any decisions about mortgages and consumer proposals, it’s important to seek professional advice. Licensed Insolvency Trustees, credit counsellors, and mortgage brokers can provide valuable guidance based on your specific financial situation.
Conclusion
A consumer proposal can provide a fresh financial start for those burdened by debt. While it does impact your credit rating and can affect your ability to secure a mortgage, with strategic planning and smart financial decisions, homeownership can still be within your reach.
Remember, every financial situation is unique. What works for one person may not work for another. It’s important to understand your options and seek professional advice before making any major financial decisions.
