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If you’re self-employed, you’re definitely not alone. Over the last couple of decades, self-employment levels in Canada have risen greatly, with over 2.9 million Canadians leaving the traditional workforce in 2018 alone. Through the advent of unconventional jobs with different ways of working, Canadians have the freedom to explore more than just the usual job structures.

Currently, 15% of the nation are self-employed, which is a pretty big chunk of the population. Although there are a lot of benefits to being self-employed, it does come with its own hurdles. Getting approved for self-employed mortgage loans isn’t impossible, but it is relatively difficult compared to other kinds of mortgage loans. Canada’s big banks and companies have implemented several strict lending rules, while the Canadian Mortgage and Housing Corporation (CMHC) discontinued mortgages for the self-employed unless verified by a third party.

This is simply because there is a higher risk associated with lending to those with unpredictable, varying, or unreliable streams of income. That being said, awareness of some strategies to implement can definitely guide you on your way. Here is how to get a mortgage if you’re self employed.

Why is it difficult for self-employed workers to get mortgages?

Despite the increasing number of self-employed workers, getting approved for self-employed mortgage loans is getting more complicated. The Office of the Superintendent of Financial Institutions (OSFI) released guidelines in 2014 that called for federally chartered lenders to inspect self-employed buyers even more closely. Simply put, the 2014 B-12 bill puts a usually simple process under more scrutiny, making it harder for self-employed workers to prove their income.

While salaried employees are easily able to get a mortgage by showing documents such as a T4, letter of employment, and recent pay stubs, these documents are often not available for most people who work for themselves.

What documents do I need to get approved?

Self-employed individuals usually utilize stated income applications to aid them in their mortgage application process. Stated income applications are used by borrowers who cannot portray their income in the usual manner or using traditional avenues. This application requires a signed income declaration and proof of self-employment, and is formulated based on how much individuals claim to earn.

For your stated income application to be accepted, lenders will need you to provide the following supported documentation as well:

1. Income tax returns. These need to date back the last two to three years. Additionally, your tax returns need to be showing profits (even minor profits help) because if they point out a loss in revenue, then most lenders will not look favourably upon your application.

2. Notice of assessment. The Canada Revenue Agency (CRA) will provide you with a notice stating that you do not have any outstanding tax payments. This helps prove to lenders that you’re a reliable borrower.

3. HST and/or GST payment proof.

4. Copy of your business license, or articles of incorporation work as well.

5. Expected revenue predictions. These are documents that demonstrate your expected revenue for the next few years, and will come in handy to prove your income is stable and consistent.

6. Down payment of 10-15%.

7. Business ownership. This is evidence to support how much of the business you own.

8. Bank statements. You will also need to provide bank statements (both business and personal) for the past 6-12 months to prove revenue and earnings.

That’s a lot of documents! Our team at Canadalend.com has helped countless self-employed workers get approved for mortgage loans, and we have a few additional recommended documents. It is beneficial for self-employed workers to have a good credit score in addition to the required documents; you can check your credit score online easily with a credit bureau like Equifax or TransUnion. A debt service ratio measures borrowers’ ability to make monthly debt payments on time, and is also usually reviewed before an approval. So, be sure to check your ratio to make sure you’re on the right track to get easily approved for a self-employed mortgage loan.

How are self-employed individuals classified?

There are many definitions as to what constitutes as self-employed, but such individuals range from being business owners and IT contractors to doctors and freelancers. Owning a farm or rental properties can also classify as being self-employed. The different business structures that self-employed individuals are classified under are what is important in getting mortgage approval and loans.

A lot of lenders will classify self-employed individuals in various groups based on business type. You could get classified under the commission sales, corporations, sole proprietors, or partnerships group, and this directly affects your mortgage approval or rejection. For example, owners of incorporated businesses pay themselves a salary, and are easily approved for self-employed mortgage rules, as their salary structure is more traditional. Thus, unincorporated businesses and sole proprietorships can benefit by incorporating, although it is best to speak to a certified professional in the business.

What Non-Traditional Lenders Can Offer

Stricter lending rules are squashing the home-ownership dream for so many Canadians. The tightening of the CMHC guidelines don’t take into account the struggles of entrepreneurs, and this trickles down into the lending rules of Canada’s big banks. Instead of struggling to get approved with strict lending rules, consider turning to those who work with private mortgage brokers. This makes the process easier for many self-employed workers because it allows potential borrowers the chance to secure a mortgage without the stress of rejections and with more specialized support. Working with non-traditional lenders will grant you access to hundreds of different lenders, many of whom specialize in lending to those who are self-employed and may not qualify for the banks’ stricter terms.

Whether you’re a commission-based employee or a business owner, if you’re struggling to get approved or don’t know where to start, then our team at Canadalend.com is here to help. Our mortgage brokers are knowledgeable and with years of experience with self-employed individuals, we are qualified to help you in your unique situation. From creating a plan of action to making sure you get specialized services and great mortgage rates, our brokers will guide you throughout your home-owning journey. 

To book an appointment or for more mortgage advice, call us at 1-866-422-6536 or contact us here.

If you’re an aspiring first-time home buyer and live in one of Canada’s three most expensive cities, a new government incentive may be the way forward for you. If you live in Toronto, Vancouver, or Victoria, then the First-Time Home Buyer Incentive (FTHBI) helps ease mortgage rates to make home-owning more accessible to all.

The government’s Fall Economic Statement included changes that will come into effect in the Spring of 2021, helping qualified buyers to reduce their monthly mortgage payments, without adding to their financial burdens. The incentive will be helpful to a lot of people in the right situation, but qualifying for it has a few caveats. 

Here is everything you need to know about the FTHBI and how to use it for your benefit in your home-owning journey.

What does the incentive offer?

The FTHBI is essentially a shared equity mortgage with the Government of Canada. In order to reduce mortgage rates, it offers three main benefits:

1. 5% or 10% for a first-time buyer’s ownership of a newly constructed home.

2. 5% for a first-time buyer’s ownership for a resale or existing home.

3. 5% for a first-time buyer’s ownership or a new or resale of a mobile/manufactured home.

As the incentive offers a shared mortgage rate benefit, the Canada Mortgage and Housing Corporation (CMHC) partners in sharing the investment of the home with you, the homeowner. As the property appreciates and depreciates in value according to the fluctuation of the market, the CMHC will share in the upside and downside of the property value with you.

The scheme is most valuable to those with outstanding financial payments, as it will help reduce the regular mortgage payments for the new home. You’ll need to pay back the amount within 25 years, during which home-buyers will be able to save up a significant chunk of money due to the reduced mortgage rates. The incentive also stipulates that in the case the property is sold before the 25 year period, the amount must be paid back. The home-buyer may also pay back the amount in full before the payment deadline without facing a prepayment penalty.

Qualifying for the FTHBI

While the incentive is of great value for many home-buyers, unfortunately it does come with some caveats. The CMHC has placed some restrictions on qualifying based on who can use it and what kind of homes can be purchased with it. Here are the four main requirements to qualify for the FTHBI:

1. First-Time Home Buyers. The name of the incentive says it all: you have to be a first-time home buyer in order to qualify! The incentive defines a first-time home buyer as someone who’s never owned a home (anywhere in the world, not just Canada), nor lived in a house owned by a spouse of a common law partner in the last four years.

2. Household Income. Another stipulation the CMHC has put in place is that the household income of the interested party must be less than $120,000 to qualify. This includes the income of you and anyone else who chooses to co-own the home with you. The annual average Canadian income is reported to be around $52,000, which means that a lot of Canadians will be able to qualify for the FTHBI in the Household Income clause.

3. Minimum Down Payment. The down payment must be paid fully in cash, after which the reduced mortgage rates start applying, meaning that the incentive doesn’t kick in until after the down payment is paid off. For properties worth $500,000 or less, the minimum down payment will be 5% of the total amount. For homes costing between $500,000 and $1 million, the down payment is 5% of the first $500,000 and then 10% of the remaining amount.

4. Maximum Borrowed. The incentive also stipulates that the maximum amount to be borrowed is four times your qualifying income. If you earn exactly $120,000 a year (which is the qualifying maximum), that means the maximum amount you can borrow to be eligible for the incentive is $480,000. This is a pretty restrictive requirement, as it significantly limits the range of properties available for reduced mortgage rates. As the FTHBI is available only in Canada’s three most expensive cities, finding an eligible mortgage within this amount can be tricky for some. This is because the first-time buyer will likely earn close to the national average and then have to buy a moderately priced home compared to their earnings as well.

Is the FTHBI right for you?

This is a tricky question because it depends on so many factors such as where you live, how much you earn, and how much financial burden you wish to undertake. There will be no one-size-fits-all answer, but checking if you’re eligible is a good place to start. Crunching some numbers to check your mortgage affordability is helpful too, so be sure to check mortgage rates with the incentive as well as without. However, it’s always best to speak to a mortgage broker in your area who can help evaluate the right move for you.

For example, if you’re looking to buy a home that’s more expensive than the maximum allowed in the incentive, then it may not be right for you. At the same time, remember that the housing market is constantly fluctuating, and it is impossible to determine future property values.

Also, researching other options for someone in your situation is great to understand the housing market where you live. A joint mortgage may be a solution for some, while a refinancing may be the right move for others.

To book an appointment or for more mortgage advice, call Canadalend at 1-866-422-6536 or contact us here.

If you’re looking at buying a house, then you already know that it’s one of the best long-term investments you can make. Although the COVID-19 pandemic has led to fluctuations in the housing market, studies show that the majority (80%) of Canadians still think that home ownership is a good investment. Over 56% of Canadians aspire to purchase a home in the near future.

This is in contrast to the housing market rates, which are quickly rising up again. Home prices are largely unaffordable, with the average home-buying budget being around $450,000 and the average home price being around $610,000. This data from the Canadian Real Estate Association highlights the discrepancy between spending power and buying price.

So, what’s the solution? Many Canadians are now considering moving out of cities to purchase a home. Suburban neighbourhoods, commuter cities, and even rural neighbourhoods are all in the running when it comes to the race of buying a home. Urban cities simply do not allow for easy home ownership: the houses are smaller and the mortgage rates are higher. Contrast this with non-urban areas, where the living is spacious with low down payments and mortgages, and it explains why many Canadians are moving outside of cities to buy homes.

Why is leaving cities easier now than before?

With the COVID-19 pandemic hitting us, where and how we work has become more flexible. Many Canadians are now working from home and will continue to do so for the foreseeable future. Workplaces are considering hybrid employment, with a portion of the work done at home and some in a physical office space. As the need to commute has either diminished or drastically reduced, many Canadians are leaving their small, rented houses and looking to buy homes in less populated cities.

The Benefits of Moving From a City to a Small Town

There’s so much that urban spaces offer us, from entertainment and outdoor dining to accessible shopping and public transit. However, with these changing times, the access to amenities has greatly reduced. City dwellers from Vancouver to Toronto are realizing that these conveniences are simply not worth the money and are instead learning to adapt without them.

In addition, in larger cities, it’s harder to get a bang for your buck. Young professionals are used to living with roommates to make ends meet, not to mention the square footage just isn’t adequate for most to live comfortably. Monthly mortgages are skyrocketing in addition to an already high down payment. Compare this to a small suburban town, where it’s possible to manage both your down payment as well as your monthly mortgage for the cost of rent living downtown in a major city.

Avoiding Becoming “House Poor”

In large cities, it is easier for new homeowners to become “house poor” or “mortgage poor”. The cost of maintenance and repairs that come with home ownership can be staggeringly high, causing individuals to fall back on their monthly payments. The interest rates add up and sometimes total more than the original cost of the home itself! This is the phenomenon of becoming “house poor”, which something many city dwellers should be wary of.

In suburban and commuter cities as well as smaller towns, it is easier to avoid becoming “house poor”. Mortgage rates and down payments are more manageable, especially if you’re still earning as much as you did when living in a city. In addition, the cost of maintenance and repairs is cheaper, with smaller communities offering competitive rates for homeowners. As the spaces are larger, there is less chance of prolonged wear and tear, which helps reduce day-to-day costs.

The Costs Simply Don’t Add Up

In addition, many report that city living is just too pricey to justify. For example, the average price of a home in Toronto is $1.03 million, whereas in Stratford the average price is $319,000. Include the cost of commuting, parking, food and drinks, and innumerable other small expenses, which just add up in a big city.

Moving as an Investment

Getting competitive mortgage rates is also easier in smaller towns. As you pay off your mortgage, the market value of your house could appreciate until you’re making a profit just by owning a home. Many Canadians are choosing to buy, use, and then sell homes in smaller towns. Especially for first-time homeowners who can’t quite afford their dream house yet, buying and selling property at the right time is a great investment option. The property can be sold or rented when the market appreciates, thus providing passive income that can support individuals and families for years.

Although the market is currently great if you’re looking to buy away from the cities, remember that the market fluctuates incessantly. Between July 2019 and July 2020, over 50,000 people left Toronto for smaller locales; similarly, Montreal lost over 24,000 people to rural areas in Quebec. What these numbers indicate is that while the non-urban markets are great right now, with the demand for homes in smaller towns increasing, the housing prices there are going to go up as well. With rising home prices come increased down payments, increased mortgages, and all the other factors that cause people to leave their small, pricey city homes.

If you’re thinking of joining so many other Canadians and moving outside the city, then think hard about the kind of life you want and how you spend your time. Living within the city or outside of it both have their advantages, so doing your research on which benefits you prioritize is important.

Are you interested in joining the thousands of other Canadians moving outside of cities? Reach out to our team at Canadalend for a free consultation to help get you started. To book an appointment or learn more about home equity loans, call us at 1-866-422-6536 or contact us here.

Buying a home is one of the biggest life purchases you'll probably ever make. You want a beautiful home at a competitive price, and you can get it, but only if you plan ahead. Whether you're buying a new house or refinancing an existing one, it's the planning that will get you there.

Making informed financing decisions will help make home ownership affordable and viable in the long run. Figuring out how you'll save for a down payment is a crucial step in the mortgage process, even more than looking out for a great price or making a monthly budget.

Here are 6 tips on how to plan for a mortgage:

1. Down payments are generally 5% to 20% of the purchase price

However, the more you're able to put down upfront, the better it is in the long run. If you can place a larger down payment, your payments and the interest on them can be reduced. Although down payments can range depending on factors such as your history, background, and credit score, the average down payment is between 5% to 20% of the purchase price. Don't forget to add the cost of mortgage insurance on top of that as well.

2. Saving can go a long way

As most financial experts will tell you, saving is key, and the earlier you start, the better. Here are some easy strategies for long-term saving:

1. Have a separate savings account just for your mortgage. This will prevent accidental spending and allow for the accruing of interest, especially if you start early.

2. Allow for automatic savings transfers. Turning on auto-deposit to ensure a portion of your paycheck goes out to your savings account every month is helpful. If you're able to put away expense cheques, tax refunds, and bonuses into this account, it'll help you build it up to a sizable amount.

3. Research growing money safely. Our team suggests that you look for a moderate solution, with reliable interest that's low risk (term deposits or high interest savings accounts are a great option).

3. Purchase within your means

This involves figuring out your housing costs, which include the mortgage principal and interest, taxes, hydro, and half your home fees. Mortgage professionals will then decide on the amount to lend you, but the general rule of thumb is that your housing costs shouldn't exceed 32% of your total income. If you have outstanding debts such as for other homes, cars, or credit cards, then the total amount shouldn't exceed 40% of your total income. This is termed the "total debt load" that you carry each month.

Considering these fixed costs you may have, our team of financial experts advise that it is always better to borrow within that maximum amount and never exceed what you're allowed or need. In fact, the less you're able to borrow, the better. This is because of the daily fluctuations in life that we all go through: your income may stop, expenses may go up, or interest rates may increase. It is more financially sound to take on a smaller mortgage and stay within your means.

4. Interest rates add up

Although it may not seem like it, those interest rates sure do add up! Do your due diligence before settling on a mortgage lender; an interest rate of 3% versus 4.5% may be the deciding factor on how quickly and easily you're able to pay off your mortgage. For example, if interest rates rise from 5% to 7%, then renewing a $250,000 mortgage will cost you an extra $300 a month. Therefore, examining interest rates and their clauses carefully is extremely important.

5. Understand the difference between rate hold and pre-approval

Many large banks will tell people that they are pre-approved to qualify for a house. In reality, there isn't enough due diligence done on the bank's end to make sure that the individual is qualified. Banks can only qualify you after verifying your credit and credit scores.

To make sure you're actually pre-approved, be sure to ask your banker or broker what your credit score is and go over any debts and payments. Sending supporting documents like a letter of employment, pay stub, and proof of down payment is helpful in getting approved as well. Working with your broker to make sure that you have a rate hold in case mortgage prices rise is another key step to go house shopping in confidence.

6. Avoid becoming "mortgage poor"

Owning a home is expensive. Fixing problems in a house can cost thousands of dollars, which you'll have to bear, rather than calling your landlord or condo maintenance. Therefore, the cost of running a house should be considered properly, especially for first-time owners. This is why it's important to stay within your maximum purchase price and start with an amount that is affordable and viable in the long run. If your house payments leave you strapped for cash every month, then it will result in being "mortgage poor" or "house poor".

At Canadalend, our team understands the stress of a first-time purchase, but our best advice is to set aside enough money for your payments with a little left over for emergencies, holidays, and fun! This will ensure you're not taking out loans on top of loans, and that you're slowly but surely building up towards your dream home without paying more than the original price.

There you have it: 6 mortgage planning tips that you probably didn't know. Here's a bonus tip: make sure you have a great team of experts to consult with so that you make sound financial decisions. Our agents have specialized industry knowledge to help guide you through your unique house-owning journey.

To book an appointment or for more mortgage advice, call us at 1-866-422-6536 or contact us here.