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Can I Get a Mortgage if I’m Self Employed?

It’s not easy to get a self-employed mortgage in Ontario. If you’re self-employed and have tried to secure one with a traditional lender, you already know that.

Over the last few years, Canada’s big banks and trust companies have implemented a large number of strict lending rules. On top of that, in 2014, the Canadian Mortgage and Housing Corporation discontinued mortgages for self-employed Canadians without third-party validation. Before that, if you were self-employed, you only had to state your income. A paper trail wasn’t necessary to back up your claims.

That’s not good enough now. Banks need to know with certainty how much you make. It’s the only way you can prove to the big banks that you’re not at risk of defaulting and worthy of getting a mortgage.

Granted, it is possible to get a mortgage from a traditional lender if you’re self-employed, but any mortgage will be based on the reasonability of income at the time you apply, as well as a strong credit score. This sounds easy enough, but it can put home ownership out of reach for those who are self-employed.

For example, if you have less than a 20% down payment, you need to prove two years of income. Unfortunately, many self-employed people claim a smaller income for tax purposes. If this is you, the big banks will see you as a risk.

Or, the banks might give you a mortgage but only if you have a down payment of 30% or more. But with the strong housing market in Ontario, most self-employed people have not saved up that much for a down payment. As a result, they are unable to qualify for a mortgage.

Mortgage Options for Self-Employed Ontarians

There are two ways for those who are self-employed to qualify for a mortgage: with income validation and without income validation.

Validated income means you’ve been in business for two full years, the business is registered as a self-employed proprietorship, you have good credit, and you’ve declared income on your tax returns.

That doesn’t mean you’ll necessarily qualify for a mortgage with a traditional lender; it just means you have proof of income. You still need to earn enough and have enough money saved for the down payment when applying for stated income mortgages.

What if you have no reportable income? The only real option for those who are self-employed and have no reportable income is to use a private lender. A private lender will still want to know that you have an income, but they won’t ask to see the kind of paperwork the banks would.

What’s most important for lenders if you’re self-employed and have no reportable income is your credit score, the quality of the property you’re looking at, the location, and marketability.

Because private lenders are not regulated in the same way the big banks and trust companies are, they have more flexibility and can get you the best mortgage with the best rates for your particular situation. You may end up paying more interest, but you will also end up with a mortgage.

Self-Employed Mortgage Scenarios

Self-Employed with Bad Credit

Having bad credit can make it very difficult to secure a loan from a traditional lender. In addition to being self-employed, which the banks view as risky, bad credit suggests there is an even greater chance you’ll default on a mortgage.

A private lender, on the other hand, is much more concerned with your current and future earnings than past mistakes. Your credit score may be bruised, but private lenders will still help you secure a mortgage if your business is profitable and you have steady income.

Self-Employed with Low Income

If you’re self-employed and report low income, you can still qualify for a mortgage. There are a large number of private lenders that will help you secure a low-income or even no-income mortgage.

Again, private lenders understand that most self-employed Canadians try to minimize their taxable income. Private lenders know the difference between reported income and gross income. In fact, some private lenders will add 10% or 15% onto the reported income if you can show business deductions that are equal to or greater than that. This can significantly increase your mortgage eligibility.

Self-Employed and Over 55

One of the largest growing demographics among the self-employed in Ontario are those 55 years of age and older. You might be an entrepreneur but when you hit 55, banks only see that your long-term earnings potential is smaller than it was when you were 45 or 50. At the same time, chances are you’re looking for the same kind of mortgage as someone who is 25 and just getting on the property ladder.

According to the big banks, this means you’re less likely to be able to pay the mortgage off. Fortunately, there are private lenders that specialize in helping those who are 55 and older secure a mortgage.

Canadalend.com, Securing You the Mortgage You Deserve

If you’re self-employed, it’s going to be difficult to get a mortgage with a traditional lender. If a bank has turned you down, the mortgage experts at Canadalend.com can help.

Because the licensed mortgage professionals at Canadalend.com are independent, they have access to hundreds of different private lenders; many specialize in helping those who are self-employed get the mortgage they deserve.

To find out what kind of self-employed mortgage you qualify for, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Photo credit : iStock.com/Jacob Ammentorp Lund

Mortgage lending is a business where the lender gets the opportunity to help people get into their dream home, secure their financial future or relieve themselves of the stress of debt. It’s an enormous responsibility and one that shouldn’t be taken lightly.

Applying a common sense approach to lending ensures that our clients are protected and that the relationship is mutually beneficial for the long-term. While lending is a complicated business, a simple and logical approach can result in successful lending and borrowing.

Who is Canadalend?

Canadalend is an experienced, friendly and full-service lender that is committed to helping their clients with all their mortgage needs, debt issues and situations involving financing and refinancing.

Canadalend is not a bank or a traditional lender but we have the experience and knowledge to manage just about any financial situation that falls under our expansive service offering. We offer a personalized service in the areas of:

• Home equity loans
• First, second and third mortgages
• Debt reduction and consolidation
• Renewals and refinancing
• Working with self-employed individuals

Our Approach

Lending should always be a business built and operated on a foundation of common-sense. We work with our clients to help them financially, both in the present and with an eye towards the future, through a process of honesty, integrity and by leveraging our expertise for their benefit.

Our common sense approach includes:

• Offering competitive rates
• Providing counsel for qualifications
• Providing flexible options
• Create strategies to help clients lower their mortgage and debt
• Provide useful cash flow options
• Offer variable rate mortgages, capped variable rates and cash back mortgages

Above all else, we will work with clients who traditional lenders typically refer to as weak investments.

Meeting your Needs

A common sense approach allows us to view applications differently and work towards finding appropriate solutions, designed to meet your needs. We view every application independently and with a unique perspective.

We often hear from our clients that dealing with Canadalend’s brokers and financial experts is a refreshing experience that produces desirable results.

Contact us today to learn more about our common-sense approach and the services we offer.

Canada’s housing market is vital to the national economy. To secure its health, all levels of Government must monitor the market and proactively step in when the warning signs become clear. In major cities, strong housing usually means strong employment rates and other signs of prosperity.

Only a few months ago, banks were urging the Federal Government to intervene in Toronto and Vancouver’s housing markets to offset the price increases from earlier in the year.

Government involvement

To stabilize or stimulate the housing market, Governments can implement several action plans or items:

• Offer subsidies to homeowners.
• Work with the Bank of Canada to lower interest rates.
• Raise the amount that someone can deduct from a RRSP to put towards down payment.
• Make renting more attractive through legislation like rent control.
• Create more areas of affordable housing for people of different economic tiers.

These are proven ideas but success is never guaranteed.

Recent Government intervention

To curb defaults and protect borrowers, the Government implemented a stress test, which made it more prohibitive for most people to get a mortgage. Essentially, a borrower had to be able to afford a mortgage at a much higher rate, proving they could withstand an interest rate hike if it were to ever happen.

This was a measure to stabilize the market by creating a barrier to entry.

Pros and Cons

The pros for Government intervention is evident. In some cases, markets can correct themselves over time, but many times, help is needed. They require legislation that puts homeowners first or has the goal of getting citizens into their first home.  The Government has the means, resources and motivation to want a strong housing market.

The consequences of Government intervention are that it could benefit lenders more than borrowers or have the interest of builders in mind. Any strategy that doesn’t put homeowners first could negatively impact the market and citizens in the long run.

Above all, the national housing market specifically in Toronto and Vancouver needs to be strong and the Government needs to do what it can to ensure its growth.

Canada’s New, Tough Mortgage Rules Effective January 1, 2018

The Office of the Superintendent of Financial Institutions Canada (OSFI) announced a number of new mortgage rules which came into effect on January 1, 2018. The new rules, which affect all Canadians renewing or refinancing a mortgage, will require people to pass a stress test to prove that they can handle interest rate hikes that are significantly higher than their current rate—even if they never actually reach those lofty levels. The new, wide ranging changes, apply to all federally regulated financial institutions.

If you’re thinking of refinancing or renewing a mortgage, the new mortgage rules will make it very difficult o renew with a new lender. Even if you stick with your current lender, you may not be able to refinance as much as you were hoping to; you might also get stuck renewing a mortgage with uncompetitive rates.

Stress Test

A stress test helps banks determine how much of a mortgage you can afford under certain circumstances. The stress test doesn’t really work in your favour; it’s the big banks way of seeing how you’d do in a worst-case scenario.

For example, could you still afford your mortgage payments if interest rates increased, your income was reduced, you lost your job, or were hit with an unexpected expense?

According to the OFSI, the stricter stress test will make the Canadian real estate market more stable. But critics say the new stress test will hit those looking to refinance the hardest.1

Federal, provincial, and local government regulations can also damage the broader economy as fewer homes are renovated, purchased, and furnished.

Loan-To-Value Ratio

The loan to value ratio is a number that measures the value of a mortgage as a percentage of the total value of the property. Traditional lenders, like Canada’s big banks, need to ensure the loan-to-value (LTV) ratio is adjusted to local market conditions. The higher the LTV ratio, the riskier the loan.

For many financial products, including a mortgage, line of credit, or home equity loan, the LTV ratio had to be lower than 80%. In other words, you could only get a financial product if you had built up at least 20% of equity in the value of the property.

For example, if the total appraised value of a home you were looking at buying was $450,000 and you saved up a down payment of $90,000 (or 20%), the total mortgage loan amount you would want is $360,000 ($360,000/$450,000), or an 80% loan-to-value (LTV) ratio.

If you saved $50,000 (or 11%) for a down payment on the same house, you would be looking at a mortgage of $400,000 ($400,000/$450,000) or an LTV ratio of 88%.

Depending on market conditions, the LTV can either rise or fall. Ideally, it falls because the value of the house increases as you pay off the mortgage. But, if the housing market suffers a correction, the LTV ratio could rise and be higher than the total value of the property.

How Does This Impact Canadians?

Old Rule

Under the old LTV ratio rule, if you were renewing a mortgage, you did not have to pass a stress test. If you were refinancing, the maximum amount of equity you could tap was 80%.

New Rule

Under the new guidelines, if you’re renewing a mortgage, you technically do not need to pass the more stringent stress test requirements. But the banks could still vet you. If you fail, you could be stuck renewing with the current financial institution or have to accept uncompetitive rates.

If you’re looking to refinance a mortgage to consolidate debt, you’ll have to qualify according to the higher stress test rates; not the mortgage rate you initially secured. This means the lender will stress test your loan adding two percent to the initial five-year fixed rate. If you have a mortgage with a five-year fixed rate at 3.3%, you’ll be stress tested at 5.3%. This means you might be stuck getting a smaller loan.

If you’re looking to refinance a mortgage, the new mortgage lending rules mean it will be a lot more difficult to qualify for your refinance. As a result, you may not be able to refinance until you build up more equity.

Canada’s stricter lending rules will also make it tougher to qualify for a home equity line of credit (HELOC). Again, that’s because the big banks need to stress test you by adding two points to the current “benchmark rate” when you apply.

Canadalend.com, the Mortgage Refinancing Experts

Starting January 1, 2018, all borrowers in Canada have to pass a strict stress test if they’re borrowing from a federally regulated financial institution. Fortunately, Canadalend.com can help circumvent those rules and get you the mortgage or other financial product you deserve.

The licensed mortgage professionals at Canadalend.com are independent. That means they can help you find a mortgage with the best rates and terms. How can Canadalend.com beat what the big banks are offering? Where banks are stuck providing their own financial products and legally need to follow the new OSFI mandated stress test, Canadalend.com has access to hundreds of different private lenders; lenders that do not follow the same rules.

If you’re looking to secure a first mortgage, renew a mortgage, or refinance, contact Canadalend.com today. We’ll evaluate your current financial situation and help you find a lender that can provide you with a mortgage that suits your financial and lifestyle needs. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1.“New mortgage rules could disqualify 10% of buyers with big down payments: Bank of Canada,” The Globe and Mail, November 28, 2017; https://www.theglobeandmail.com/report-on-business/new-mortgage-stress-tests-could-disqualify-10-of-buyers-bank-of-canada/article37109981/.