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Now you can listen to our blog, “Can I Get A Mortgage During A Consumer Proposal?” while on the go.
A consumer proposal is not bankruptcy, but as far as credit ratings go, a consumer proposal has a similar effect. This can impact a lot of your decisions. So, it is necessary for you to really understand what it is exactly.
What is a consumer proposal?
For the want of definition, it is a legally binding debt relief process. In this, a person proposes a way to pay creditors some of what they owe. Also, payments are spread payments out over a longer time period. Usually, it is up to five years. You typically need to work with a Licensed Insolvency Trustee to develop the consumer proposal.
Mortgage & Consumer Proposal: What You Need to Know
A consumer proposal has a role to play in your mortgage approval and renewal. This is the one thing that occupies half of the mind of any homeowner who is facing it. After all, losing one’s home or not being able to buy one is a completely devastating situation.
In simple words, a client who has recently completed a consumer proposal is seen as a credit risk. This is because completing their proposal does not erase the history of not paying their debts. In such a situation, standard lenders do not take the risk of financing a mortgage. Until the client has had at least two years with a clean history of following the end.
After doing this, a person will need at least a 20 percent down payment and paperwork. This will vindicate that he or she has been working on rebuilding their credit score. You might consider an alternative lender after seeing the requirement of a 20 percent down payment. But remember alternative lender will also look at your specific situation and assess the risk. They look closely at the people and circumstances as well as the numbers.
Once you know the process and understand that there is no way but to amend your finances. It is time to know how long will it take to get a mortgage. The one-liner answer to this will be, it depends. However, for an idea, know that alternative lenders might be your best fit if you are looking for quick relief. Alternative lenders are more willing to work with you to help you move forward.
In contrast, traditional lenders are unlikely to consider a new mortgage until the client has fixed their credit.
There is no limitation of time on when you can apply for the mortgage. Once you feel you are on track, you can apply it. However, know that the lender will still look at the creditworthiness and will need documents to assess everything. If mortgage financing is approved, you will be required to use the proceeds to pay out the consumer proposal.
Mortgage Rate in Consumer Proposal
If you are in a consumer proposal, expect a higher mortgage rate by default. The interest rate will reflect the risks involved in financing mortgages in this situation. However, once your credit score will start improving, your mortgage rate will become more negotiable and better. You can utilize this advantage only when renewing your mortgage.
Those who have experienced a consumer proposal will likely need solutions to help them manage their monthly budget. So, knowing why mortgage payments matter more than mortgage rates will be helpful.
Refinance To Pay Off Consumer Proposal
Refinancing a mortgage can sometimes be the best way to pay off a large debt including a consumer proposal. In such situations, you need a larger mortgage so it can cover both the mortgage amount and the consumer proposal debt.
Read More: Best Loan Options to Consider
However, before refinancing, here are some things you must take into consideration.
- No bank is going to finance a home more than its value. So, make sure you have some equity to cover the additional loan amount
- The lender will assess whether the situation which pushed you into the consumer proposal will happen again
- Your consumer proposal is an indication that your credit score won’t be great. But, check all the factors like credit history, bank statements, and employment to determine your creditworthiness.
Once you know it is possible to get a mortgage during your consumer proposal, it is time to move on to the most important point of fixing and rehabbing credit after a consumer proposal.
It is important to mention here that rehabbing credit is a difficult choice. It requires extensive effort and responsible credit management for at least a couple of years before you even consider talking. The first thing you should do is to review the credit report and clean reporting errors on the credit history. Although this is a messy task, it is vital to rebuild the credit.
Also, know that some credit card debt may continue to show late payments even when the consumer proposal is filed and has been completed. Some quicker and straightforward ways you can use to improve your credit are: Using credit; paying bills on time; showing stability in your financial life and continuing to check the credit report for errors
The Bottom Line
To top it all, it is easier to get into debt – but getting out is the most difficult part one ever faces. Also, a consumer proposal is an answer for a client whether he is better at managing debt or not.
If you are the one struggling with bad finances, we can help you up with your mortgage. Contact any one of our members, or come to our office directly if you live to interact with us. We are always here to provide you with an expert helping hand in everything you need.