Mortgages After a Consumer Proposal

A mortgage after a consumer proposal is possible, but rarely right away and rarely from a big bank. Most lenders want the proposal fully paid, discharged, and followed by a stretch of rebuilt credit before they approve financing. Until then you are looking at alternative or private lenders, a larger down payment, and a higher interest rate. A Licensed Insolvency Trustee administers the whole process under the federal Bankruptcy and Insolvency Act.

What a consumer proposal does to your credit file

A consumer proposal is a formal settlement with your unsecured creditors. You agree to repay a portion of what you owe — usually in monthly payments over a period of up to five years — and the remaining balance is forgiven when you complete the terms. Because it is a legal insolvency filing, it is recorded on your credit report, and Equifax and TransUnion typically keep it there for a set period measured from the filing date or from the date you finish paying, whichever comes first. Confirm the current retention period with the credit bureaus, because it shapes how lenders read your file.

Two dates matter to a mortgage lender: when the proposal was filed and when it was discharged (completed). A discharged proposal followed by clean, active credit tells a very different story than an open filing, even if the filing itself is still visible on your report.

While your proposal is still active

Qualifying for a mainstream mortgage during an active proposal is very difficult. You are generally required to disclose the proposal when you apply for credit above the threshold set in the legislation, and any lender who pulls your credit report will see it anyway. Federally regulated lenders that follow OSFI Guideline B-20 take a cautious view of open insolvency filings, and most simply will not approve a new insured mortgage in that situation.

That does not make homeownership impossible. It means the lenders willing to lend are alternative (sometimes called B-lenders) or private, and both price for the risk. Expect a much larger down payment requirement, an interest rate well above what a prime borrower pays — alternative lenders often price off the prime rate plus a premium, or off their own posted rates — and lender or brokerage fees on top. If you already own a home with a mortgage and you file a proposal, your secured mortgage is generally not included unless you choose to surrender the property. Your renewal is usually fine with your existing lender, but switching to a new lender while the filing is open is hard. See getting a mortgage after bankruptcy for how the sibling process compares.

When lenders will start considering you

There is no single national rule. Each lender sets its own policy, and those policies change. The pattern below is typical, but confirm the specifics with the lender or a mortgage broker who works with bruised credit.

Many lenders want a set period of time to pass after discharge, plus proof that you have handled new credit responsibly during that time. A discharged proposal with no credit activity afterward is harder to approve than one followed by a secured card paid on time every month. If you are still repairing your score, the strategies in getting a mortgage with bad credit in Canada apply directly to your situation.

What lenders look for in your application

Down payment and mortgage default insurance

Insured mortgages — the ones backed by CMHC or a private insurer — require a minimum down payment that is tiered: a lower percentage on the first slice of the purchase price and a higher percentage above it. Confirm the current tiers on the CMHC website before you budget. When your credit history is bruised, a larger down payment does two things: it lowers the loan-to-value ratio and it shows the lender you have rebuilt savings. With alternative lenders, a bigger down payment often widens the number of lenders willing to look at your file at all.

Income and debt ratios

Lenders still measure your GDS and TDS ratios — the share of your gross income that goes to housing costs, and to housing plus all other debts. Even with a strong down payment, a TDS that is too high will sink the application. Our guide to GDS and TDS ratios walks through how the math works.

The mortgage stress test

If your mortgage will be insured, or if you are borrowing from a federally regulated lender, you must qualify at the mortgage stress test rate — the higher of your contract rate plus two percentage points or the published qualifying-rate floor. Confirm the current floor with OSFI or your lender. A higher stress-test rate reduces how much you can borrow, so run your numbers before you shop. The stress test explained covers the mechanics.

Credit re-establishment

Lenders want evidence that the problems that led to the proposal are behind you. That means recent, active credit — not a blank file. A secured credit card used lightly and paid in full each month is the standard way to rebuild, and it produces exactly the payment history an underwriter is looking for.

Getting your paperwork in order

Expect to provide more documentation than a typical borrower: the certificate of discharge or completion letter from your Licensed Insolvency Trustee, proof of your payment history under the proposal, recent CRA notices of assessment, employment letters or two years of self-employed financials, bank statements showing the down payment, and proof of where those funds came from. A gifted down payment needs a letter confirming it is a gift and not a loan; borrowed down payments are not permitted on insured mortgages. Review the full list in documents you need for a Canadian mortgage application.

Steps that strengthen your file

• Get a secured credit card and use it for small, regular purchases you pay off in full every month.
• Keep your credit utilization low — well below the limit, not close to it.
• Avoid applying for several credit products in a short window; each inquiry leaves a mark.
• Pull your reports from both national bureaus and dispute any errors in writing.
• Save your down payment in a TFSA, FHSA, or RRSP. First-time buyers can use the RRSP Home Buyers' Plan, and the First Home Savings Account offers tax-deductible contributions and tax-free withdrawals for a qualifying purchase. Confirm current limits with the CRA.
• Keep every on-time payment documented — it becomes your evidence file.

Budget beyond the down payment too. Land transfer tax, legal fees, an appraisal, title insurance, and moving costs all land on closing day, and the costs vary by province.

Run the numbers yourself with the mortgage affordability calculator, then talk to a mortgage broker who regularly places files with alternative lenders. Brokers see which lenders are actively lending to borrowers after a consumer proposal right now, and they can tell you honestly whether your file is ready or whether another few months of rebuilt credit would open better options. This article is general information, not financial or legal advice — your circumstances and each lender's policy determine what you qualify for.