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Getting a mortgage after a consumer proposal

Getting a consumer proposal can feel like a huge weight off your shoulders if you had been struggling with debt for a while. It allows you to settle your debts for less than the full amount and move on with your life. Unfortunately, it can take some time before your credit score is good enough to get a mortgage – or does it?
If you’ve been having trouble getting approved for a mortgage because of a consumer proposal on your report, you may still be able to get a mortgage. The time you have to wait before applying for a mortgage after a consumer proposal depends on when you finished paying off your proposal and how diligent you were in rebuilding your credit.

How long does it take for a consumer proposal to disappear from my credit report?

It takes 3 years from the date of discharge for a consumer proposal to fall off your report. This is different from the date you enter a proposal – you are only discharged once you finish your payments. The average length of a consumer proposal is 3 – 5 years, which means you’ll be discharged 6 – 8 years after beginning a proposal.

Improving your credit after a proposal

Your first priority when in a consumer proposal should be making all your payments on time. But once you’re done paying and have no more debts, what should you do next? The proposal will have hurt your credit score, so you’ll want to bring it back up to get access to the best mortgage rates in Canada.

Pay all your bills on time

You probably have many monthly payments all due on different dates. It can be easy for one of those payments – especially if it’s one of many credit cards – to be missed, adding a huge black mark back onto your report.
Missing payments is one of the worst things you can do for your score. Luckily, we live in the age of technology which can make it so you never piss a payment again. Many banks will allow you to schedule regular bill payments, either on a specific date every month or a time frame like every two weeks. The more bills you have set to autopay, the less you have to worry about making all your payments on time – your bank will do it for you.
When setting up your autopay, remember to keep enough money in your chequing account to cover all those bills. If you don’t, you’ll run into one of two problems:

  • If you have overdraft protection, you’ll have to pay your bank back
  • If your bank doesn’t allow overdraft, then you’ll miss that bill payment.

Autopay can be very convenient, but if you never check your balances you can still miss a payment.

Pay off your remaining debts

If you have any outstanding debts after your consumer proposal, you should start paying those down as well. The sooner you get out of debt, the more money you’ll save. You’ll spend less in interest and increase your monthly cash flow.

Use credit responsibly

In order to get approved for credit after a proposal, you have to show lenders that you learned your lesson. The only way to do this is to use a credit product, like a credit card or loan, responsibly.
If your score is particularly low, you’ll have few options for getting credit products to rebuild your credit in the first place. The best bet if your score is too low to get normal credit cards is to get a secured credit card. Be sure that it’s a secured credit card and not a pre-paid credit card – although they may seem similar at first, a pre-paid credit card will not improve your score.
A secured credit card requires a down payment to apply, but approvals are almost always guaranteed. Your credit limit is usually equal to the amount of money you put down, and you use it like a normal credit card. Your deposit will not be used to pay the balance unless you become severely delinquent on your payments. Instead, you pay it off like a normal card – complete with interest payments if you carry a balance. With a few months to a year of regular, on-time payments, your score may improve enough for you to graduate to an unsecured credit card. When you cancel a secured card, you get your deposit back.

Build your down payment

Aside from improving your credit score, building a big down payment is the best thing you can do to save money on your mortgage. How big your down payment should be depends on how soon after a proposal you plan on buying a home.

If you want to buy a home soon after discharge

Your credit score will be low after being discharged from a consumer proposal. As a result, AAA lenders like banks probably won’t approve your mortgage applications. Your best option would be to go to an alternative or B lender. They are willing to take on more risk by lending to those with lower scores, but they charge higher interest rates. Additionally, they’ll want to see you bring a higher down payment – think 15% and up.

If you want to buy a home later

The longer you wait after a proposal discharge, the more likely it is you’ll get a better rate. You’ll have more time to rebuild your credit so your score will be higher, and any previous missed or late payments may have fallen off your report. You can bring a smaller down payment to a AAA lender (starting at 5%) but you’ll save more money on your mortgage if your down payment is higher.

Speak to a mortgage broker

Many people don’t realize how many options they have when it comes to getting a mortgage. If you get rejected from the bank, that doesn’t mean you can’t get a great rate from another lender. Instead of giving up after the bank says no, or turning immediately to high-cost private lenders, talk to a mortgage broker who will work your application for you.
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