How do I secure a mortgage as a self-employed buyer?
BY STEPHEN MORANIS, POSTMEDIA NEWS
Today, there are so many individuals who are self-employed or are working in the underground economy that the conventional criteria in being approved for a home mortgage do not apply.
If you do not have a T4 confirmation of employment income, then shopping for a mortgage through the many self-employed programs is a very confusing and tricky process. A pre-approved mortgage presents you as a much more serious buyer to sellers and real estate agents, especially if you become involved in today’s commonplace bidding wars. If you want to win the battle, though, removing all conditions such as satisfactory financing is mandatory.
All mortgage pre-approvals are free and there is no obligation to use the lender who pre-approves you for financing. It is best to sit down with a bank and/or mortgage broker to discuss the many options that are available for you as a self-employed individual.
The growing segment of self-employed residential mortgage borrowers has come under much scrutiny over the last few years as the federal government tries to ensure there is not a credit collapse like the one in the U.S. in 2008 during a period of sub-prime mortgages with high debt to equity values.
All of the major Canadian banks have created innovative lending programs to meet the unique and specific needs of entrepreneurs and self-employed individuals. Major mortgage lenders are trying to streamline the mortgage approval process, which in many cases does not require specific detailed financial statements or income verification. In some cases you do not have to prove your actual income, but you will be required to have a higher down payment, generally in the 35 per cent range of equity to debt being borrowed.
Your personal credit profile must be strong for credit approval and your income must be reasonable for the nature and tenure of your business. There are programs where you can borrow up to 80 per cent of the purchase price or value of the property with no default insurance, or up to 95 per cent with default insurance. Minimum down payments require 10 per cent, of which 5 per cent must come from the borrower’s own resources. The remainder of the down payment may be gifted from an immediate family member.
In many cases, commission sales income is not eligible for self-employed insured guidelines. In these circumstances, lenders can loan up to 90 per cent for purchase financing and up to 80 per cent for refinancing. You must show a minimum history of 2 years of being self-employed.
Across the country, the maximum loan amounts vary for self-employed persons. For Greater Toronto, Vancouver and Calgary, it’s up to $750,000. For other locations, a maximum loan amount of $600,000 applies. Of course, there are many exceptions on a case-by-case basis and knowledgeable bank representatives and/or mortgage brokers can help you sift through the process.
Speak to a minimum of two lending institutions and/or mortgage brokers about being pre-approved under the self-employed mortgage programs. Mortgage brokers are an excellent source as they can help with damaged credit. And remember that features matter. These may range from good prepayment privileges with fair penalties, if at all, and good portability and refinance policies.
There’s no secret in finding the right plan -- comparison shopping wins every time.
Stephen Moranis, B.Comm., MBA, FRI, CMR has been active in the North American Real Estate Industry for more than 40 years. He is a former President of the Toronto Real Estate Board and a former Director of the Canadian Real Estate Association.
Do you have a real estate question or topic that you would like to know more about?
No comments:
Post a Comment