25 Aug

Can I get a mortgage if I am in a consumer Proposal?


Posted by: Devon Jones

Getting a mortgage if you are in a consumer proposal is possible. In most cases because you will not qualify for the best rate but there are options. This could range from a lower loan to value to a second mortgage. What is a consumer proposal?

What is a Consumer Proposal?

A consumer proposal is a legal agreement (and an alternative to a bankruptcy) between a debtor and his or her creditors when the debtor cannot afford to pay the creditors. In this process, the bankruptcy trustee will work with you to develop a “proposal”—an offer to pay creditors a percentage of what is owed to them, or extend the time you have to pay off the debts, or both.

The Bankruptcy and Insolvency Act (BIA) requires that the terms of a consumer proposal be completed within five years. A proposal is defined in the BIA as a proposal or consumer proposal for a composition, an extension of time, or a scheme or arrangement by which a person, unable to discharge his or her financial obligations in the ordinary course, may make an offer to creditors to settle these obligations. Once the proposal is accepted, deemed or otherwise, by the creditors and the court, it is, in effect, a binding contact on both the debtor and the creditors.

Something to know

The administrator, who is a licensed bankruptcy trustee, makes a binding offer to your creditors to settle debts Creditors often agree to accept a significant discounted amount The amount you pay depends on the amount you earn and how much property you own

A consumer proposals also:

   Avoids you going personal bankruptcy.

   Avoids your creditors taking legal action against you.

   Ensures that you do not lose your assets e.g. your home or car.

   Reduces the amount of money that you have to pay.

   Allows you to make monthly payments that you can afford.

   Allow you get to keep your assets

To qualify to make a consumer proposal, someone must:

   Be insolvent – have more debts than assets, or are unable to meet your obligations as they come due.

   Owe less than $250,000 to your creditors, excluding a mortgage on your home.

   Have enough income to make a monthly payment or access to funds to be used as a lump sum payment.

A consumer proposal can be made by a consumer debtor unless the consumer debtor has already filed a notice of intention to make a proposal or has filed a proposal under division I of part III of the BIA and the trustee has not been discharged.A consumer debtor is defined as a natural person who is bankrupt or insolvent and whose aggregate debts, excluding any debt secured by the debtor’s principal residence, do not exceed $250,000.00.

Why would someone consider a Consumer Proposal?

The main reason people enter into a consumer proposal is to get their debts consolidated and finances back under control.

Reduces your personal and finance stress. A consumer proposal will have a less severe impact on your credit.

One enters into a consumer proposal when you owe more money than you can make payments for.

The debtor might avoid the stigma and practical consequences of bankruptcy (but not always, as usually their credit rating will be affected and the connotation of financial failure may still be present); • the debtor may be able to preserve assets and their equity in a car or house; and, • creditors may obtain a larger distribution than in a bankruptcy, although it may be over a longer period of time.

How can I get a mortgage when I am in a consumer proposal?

You can apply for a mortgage, renew or refinance your current mortgage during your consumer proposal. However, because you are in a consumer proposal it fewer lenders will be interested in giving you a mortgage. You will need the services of an experienced and mortgage agent to find you a mortgage and you might need a first and second mortgage or a private mortgage to access the equity you need from your property.

If you are a current homeowner and are in or are thinking about a proposal there are a few things you should consider. Renewing your mortgage or refinancing your mortgage might not be as easy and the rates might not be the most attractive for several years. Depending on your reestablished credit or the length of time you take to pay off the proposal could seriously affect your credit rating.


Paying out your proposal in a lump sum is always the way to go. It allows you to start establishing your credit faster as it reflect the payment three months after you have paid out the proposal. If you make monthly payments and take six years then it would take 9 years to reflect and allow your credit rebuilding process to start. In some cases you will need to restructure the entire mortgage to pay out the proposal so you can reset your mortgage payment and give you enough time for the consumer proposal to fall off your credit bureau before you reapply for a new mortgage.

To get more information please call me at 416-884-1447 or 1855-227-5663 or apply at www.devonjones.ca

22 Aug

What every self employed mortgage borrower should know


Posted by: Devon Jones

Self-employed mortgages as we know it is fast becoming a dinosaur. Stated income mortgages are a thing of the past and more and more self-employed clients are having difficulties either qualifying to buy a house or qualifying to refinance the property they currently own. Almost all the mortgage agents I know of have clients who fall in this category. Like me they have been advising their clients for years that they need to declare more of their income in order to qualify for a mortgage.

What is a stated income mortgage? Previously lenders would accept the income declared by a self-employed individual as long as

  • They could prove that they were in business for at least two years
  • Provide their business registration to prove business existence
  • Prove that they have filed their tax return in the last two years
  • Have no income tax owing have a beacon score of 680 or more

Self-employed clients are savvy in avoiding income taxes so they reduce their income as much as they can. Those who collect cash don’t usually let that income pass through their accounts and thus lay the dilemma. New regulations require that the borrower provide proof to the lender that he/she is making enough to afford the mortgage payments (principal and interest payments plus property taxes) and all other outstanding debts on the credit bureau at the time of closing the mortgage. There are five criteria of getting a mortgage which will be discussed later but a borrowers capacity to pay the mortgage has been the main reason why many self-employed borrowers get declined with their mortgage application

Assuming your mortgage principal, interest and tax payment is $1,751.07 and the total payment of the other debts (car loans, credit card payments etc.) is 739.38, your total monthly obligation for mortgage qualification is $2,490.45. The lenders use a ratio to qualify a borrower and depending on your credit score there are different ratios. For this scenario I am going to use a Gross Debt Service GDS of 35% and a Total Debt Service (TDS) of 42%.

So what is your GDS? Your GDS is the amount of your income that a lender allocates for your mortgage payment (mortgage principal and interest plus tax payment plus 50% of a condo fee if you are buying a condo). In this scenario we are using 35% of your reported monthly income. So in our example if your mortgage payment is $1,751.07 then your monthly income before taxes should be $5,003.00. Your TDS (mortgage principal and interest plus taxes plus 50% condo fees and all other debts) which in this instance is $2.490.45. Now to qualify for a mortgage the monthly income should be $5,929.64 or $71,155.68 annually.


If you cannot satisfy those requirements then you are likely going to have difficulties getting the mortgage approved and from what I am seeing changing the culture of self-employed borrowers is a slow process. They are existing in two different worlds. For four years they try to minimize taxes as much as possible and in year five when their mortgage matures (or any other time when they want a refinance) there is disappointment that the income isn’t enough to get them a bigger mortgage.

It’s especially harder to refinance as when some of these current crop of owners bought their houses there was no income verification, stated income, no money down and so many other features to put people in a home. Now the criteria’s are close to similar to those of a salaried borrower and most self-employed refinancers aren’t prepared as the lenders will sometimes require as many as 12 months bank statements to prove that the annual income is similar to what is stated on the application.


These days in addition to the borrowers Notice of Assessment, lenders will require audited financial statements or a review engagement financial statement prepared by a practicing accountant. The income for the last two years will be average to determine the income and if the income has fallen by more than 10% the most recent year they will use the lower income. Conversely if the income has increased year over a year over the last 4 years they will use the most recent year’s income.


There are five things that a lender looks at when approving a mortgage, Credit – What’s on your credit report or how you use your credit. Character – are you believable or do you do the right thing like making your payment on time, are there any judgment, collection etc. Collateral – when they lend you money they are also owners of the property. So they ask themselves if they would like to own that property. Lenders are only interested in collecting interest so their only concern is how quickly they can sell should a borrower default. Capital – How much are you investing in the property and all these proponents are inter related as if they love your character, credit and character then your down payment is lower, but if they think you are a high risk then your rate is higher and your capital requirement will be more. Finally Capacity – This is your income, more and more lenders are looking at peoples capacity to make the payments and so they are asking for more information on income to make sure that unless something unforeseen happens there is the belief when the mortgage is approved that you will be able to make the payments for the term of the mortgage.


Increasingly lenders have been looking at credit and capacity. Currently you have to have a down payment to buy and when you refinance you have to have 20% equity (15% if you get a second mortgage) (your collateral) and your character determines your credit. So if you don’t have adequate credit you won’t be financed (unless you go to a B lender and they have their cut off criteria as well). And you definitely will not be approved if you don’t have the capacity or thin income showing going through your bank account(s) satisfying both the GDS and the TDS.

I advise my clients to talk to an accountant who has a relationship with a mortgage agent or agents who can interpret the need of a self-employed individual to reduce taxes but also understand what needs to be done (add backs etc.) to have their clients qualify for a mortgage either to purchase or refinance when that time comes.

I do a lot of work in the self employed market and with creative financing there are countless solutions and with numerous lenders having their niche getting an approval is not as daunting as it seems. Due to these issues I have temed up with lenders who have an appitite for these mortgage and we have had a lot of very satisfied and happy clients.