Getting a Mortgage After Bankruptcy or Consumer Proposal in Ontario

If you have been through bankruptcy or a consumer proposal, you may wonder when a lender will take you seriously again. The honest answer is that there is no single waiting period. Each lender sets its own policy, and your credit report, income and down payment all matter.

This article explains how the two processes differ, how long they show on a credit report, what kinds of lenders exist, and what paperwork to gather. A lawyer or licensed mortgage broker can help with the specifics.

Bankruptcy and consumer proposals are different

Both are formal insolvency processes, but they work differently, and lenders may treat them differently.

For a consumer proposal, the home mortgage is excluded from the $250,000 debt eligibility limit. If you want to keep your home, your lender's rights usually continue, so keep making mortgage payments and talk to a licensed insolvency professional about your situation.

How long it shows on your credit report

Lenders pull your credit report, so what appears and for how long affects your options. Credit reporting guidance describes these general timelines.

• Bankruptcy is usually removed from Equifax and TransUnion 6 years after discharge, and in some provinces 7 years.
• A consumer proposal is removed 3 years after the debts are paid off or 6 years after signing, whichever comes first.
• Late or unpaid accounts can stay up to 6 years.

Removal from the report is not the same as being approved. Many lenders look at what has happened since: whether you have rebuilt credit, kept bills current and saved a down payment. Waiting periods that lenders apply after a discharge or completed proposal are lender policy, and they differ between lenders.

Types of lenders and what to watch for

Large banks tend to have stricter guidelines. Smaller lenders, credit unions and private lenders may be more flexible but usually charge higher rates or fees. A mortgage broker can compare these options.

Private lenders carry particular risks. In Ontario, brokers and agents must give written disclosure under the Mortgage Brokerages, Lenders and Administrators Act, 2006. Private lenders and investors must receive the prescribed Form 1 disclosure signed by a licensed broker, and fees must be paid to the brokerage and disclosed in writing.

The Criminal Code makes it an offence to enter into an arrangement to receive interest at a criminal rate, which is an annual percentage rate above 35 per cent. Interest here means all charges and expenses, including fees, fines, penalties and commissions paid or payable for advancing credit. Fees deducted from the advance also reduce the credit actually advanced, which raises the effective rate. Some commercial loans to non-individuals are exempt, but loans to individuals for personal purposes remain under the 35 per cent cap.

Even where a rate is legal, a high-cost private mortgage is usually meant to be short-term. Plan how you will refinance into a lower-cost mortgage later, and check any prepayment charges in the contract.

Paperwork to gather

Lenders and lawyers will want proof that the insolvency process is complete and that your finances are stable. Typical items include the following.

• Your discharge paperwork if you were bankrupt, or your certificate of full performance if you completed a consumer proposal.
• Confirmation that the certificate was sent to the credit bureaus, since a copy should be sent to them.
• Recent credit reports from both bureaus.
• Proof of income, employment and the source of your down payment.
• Mortgage and payment history on any home you kept through the process.

If you also owe tax debts, note that the CRA must certify the amount owed through a provincial judgment or a Federal Court certificate before placing a lien, and a payment arrangement does not stop the CRA from applying credits or benefits to the debt. Raise any tax debt with your lawyer or broker early, since it can affect both your finances and title.

Renewing or refinancing the home you kept

If you kept your home, a renewal may be easier than a new application. Federally regulated lenders must send a renewal statement at least 21 days before the end of the term, and must give 21 days' notice if they will not renew. You can ask your lender for a lower rate, and switching to another lender means the new lender must approve you and may involve appraisal, discharge, registration and legal fees.

What to do next

• Pull your credit reports and confirm how your insolvency is listed.
• Confirm you have your discharge or certificate of full performance paperwork.
• Speak to a licensed mortgage broker about which lenders will consider your file.
• Get every fee and the total cost of borrowing in writing before you commit.
• Have a lawyer review any private mortgage before you sign.

Frequently asked questions