Getting a Mortgage After a Consumer Proposal
A consumer proposal is an alternative to bankruptcy that allows you to negotiate partial debt repayment with your creditors, under the supervision of a Licensed Insolvency Trustee (LIT). Governed by the Bankruptcy and Insolvency Act (BIA), it is available to debtors whose debts (excluding the mortgage on the principal residence) do not exceed $250,000. While less damaging to credit than bankruptcy, the proposal leaves a significant mark on the credit file that influences mortgage access.
Impact on the Credit File
When a consumer proposal is filed, the accounts included are rated R7 (payment made under a special arrangement) on the credit file at Equifax and TransUnion. This notation remains for the duration of the proposal (typically 3 to 5 years) and for an additional 3 years after completion. By comparison, bankruptcy generates an R9 rating that remains for 6 to 7 years after discharge. In terms of raw impact on the numerical credit score, a consumer proposal is less damaging than bankruptcy, but both cause a significant score drop, often below 500 points during the inscription period.
- R7 rating
- In the Canadian credit rating system, the R7 notation means repayment made under a special arrangement, including a consumer proposal. It is a negative rating, but less severe than the R9 rating (bankruptcy).
Timeline to Mortgage Financing
- During the proposal (years 1 to 5): Focus on making all payments required under the proposal without fail. Any default can result in the proposal being annulled. Start saving for your down payment as soon as possible. Do not accumulate new debts.
- Proposal completion: Obtain your certificate of completion from the trustee. Immediately apply for a secured credit card to start actively rebuilding your credit. The R7 notation will begin its 3-year countdown from this date.
- Active rebuilding (years 1 and 2 after completion): Use your secured credit card in a disciplined manner: small purchases, full monthly payment, utilization under 30%. Add a small secured loan after 6 to 12 months. Monitor your credit score monthly.
- Mortgage application (year 2 or 3 after completion): Consult an AMF-certified mortgage broker in Quebec to assess your eligibility. The broker will déterminé whether a conventional lender (with CMHC insurance) or a B lender is a commonly preferred option based on your current profile.
Available Financing Options
After completing a consumer proposal, three categories of lenders may be considered. Conventional lenders (Schedule I banks, credit unions) offer the most competitive rates but generally require 2 years or more of re-established credit, a credit score of at least 620 to 680, and the ability to obtain mortgage insurance (CMHC, Sagen, Canada Guaranty). B lenders (trust companies, alternative lenders) accept more recent files, but at rates 1% to 3% above conventional rates, and generally require a minimum 20% down payment. Private lenders, as a last resort, may consider still-active files, but at significantly higher rates (8% to 15%) and with substantial fees.
The AMF-certified mortgage broker in Quebec is an indispensable partner in this process. Their knowledge of the lender network, their ability to present your file optimally, and their legal obligation to act in your best interest (LDPSF) make them the best-positioned professional to guide you toward homeownership after a consumer proposal.