Most people in a consumer proposal have been told, usually by a bank, that they cannot get a mortgage until years after it is finished. That is accurate for that bank. It is not accurate for the market.
Before going further, one thing needs to be clear. S2 Mortgage Group does not file consumer proposals and cannot advise you on whether to file one. A proposal is a legal insolvency process under the federal Bankruptcy and Insolvency Act, and only a Licensed Insolvency Trustee can administer one. What follows is about mortgage financing when a proposal is already on your file.
What a proposal actually does to your credit file
A consumer proposal is reported to both Canadian credit bureaus. Equifax and TransUnion generally remove it three years after you complete it, or six years from the filing date, whichever comes first. The individual accounts included in the proposal are also marked, and those markings carry their own timelines.
The practical effect is a low score, usually in the 500s, and a file that automated bank systems reject before a human ever reads it. That automated rejection is what most people experience, and it is easy to mistake it for a rule that applies everywhere.
The three lender tiers, and where a proposal fits
Canadian mortgage lending sits in three broad tiers.
Prime lenders are the banks, credit unions and monoline lenders offering the lowest rates. They generally want to see the proposal fully discharged and then two years of clean, re-established credit. Two years is the common threshold, not a legislated one, and a few will look earlier with strong compensating factors.
Alternative or B lenders price for risk rather than avoiding it. Many will consider a file the day after discharge. Some will look at an active proposal, particularly when the proposal is being paid out in full through the mortgage itself. Expect a higher rate and often a lender fee.
Private lenders lend against equity with far less weight on credit. This is the most expensive tier and is only appropriate as a short bridge with a defined exit.
The equity payout, which is the most useful option most people have not heard of
If you own a home with equity and you are still in an active proposal, you may be able to refinance and pay the proposal out in full in one payment. Your trustee provides a payout figure. Your lawyer sends that amount directly to the trustee at closing.
Two things happen at once. The proposal is completed, so the three-year post-completion clock starts immediately instead of years from now. And the monthly proposal payment disappears from your budget.
The trade-off is that you are moving unsecured debt onto your home. The proposal balance becomes part of your mortgage. That is a real change in risk and it should be a deliberate decision, not an automatic one.
What lenders want to see
Whether you are mid-proposal or discharged, the same handful of things move a file from declined to approved.
- Re-established credit. Two active accounts reporting for at least twelve months is the usual target. A secured credit card and a small loan is enough. Keep balances under 30% of the limit and never miss a date.
- Clean payment history since filing. A missed payment after the proposal started does more damage than the proposal itself.
- Taxes current. CRA arrears will stop most files regardless of everything else.
- Verifiable income. Time in the role and consistency matter more than the size of the number.
- Down payment or equity. More equity opens more lenders, at better pricing.
Check how the proposal is being reported
Credit reporting errors on proposals are common. Accounts get reported as still owing when they were included and settled. Completion dates get recorded late or not at all. Any of these can cause a decline on their own.
Pull your reports from both Equifax and TransUnion before applying anywhere. They are free. Compare every account against the list in your proposal documents, and file a dispute for anything that does not match. Fixing a reporting error costs nothing and sometimes moves a file a full lender tier.
A realistic timeline
For a discharged borrower starting with a bare credit file, a common path looks like this. Months one to three: pull both reports, correct errors, open a secured card and one small credit product. Months three to twelve: perfect payment history, low balances, no new inquiries. Month twelve onward: an alternative lender file becomes realistic if there is equity or a reasonable down payment. Around month twenty-four after discharge: prime lending comes back into range.
If you already own a home with equity, that timeline compresses considerably, because equity substitutes for a lot of what the credit file cannot yet prove.
What to do first
Get your discharge date, or your trustee's payout figure if the proposal is active. Pull both credit reports. Write down what you owe on the property and what you think it is worth. Those four pieces of information are enough for a broker to tell you in one conversation which tier you are in and what the next twelve months should look like.
The answer is rarely no. It is usually a question of which lender, at what price, and what has to be true first.
This article is general information, not advice about your situation, and it is not legal or insolvency advice. Speak to a Licensed Insolvency Trustee about a consumer proposal, and to a licensed mortgage agent about financing.