Self Employed Mortgages

There are two different types of mortgages for self-employed borrowers.  One is based on qualified income (proof of income on using tax returns) and the other is non-qualifier income (using bank deposits rather than tax returns).  There are big differences in lender policy based on each type of borrowers.

Borrowers who qualify based on provable income: 

Once you are self-employed the mortgage broker or lender will ask to see your last two years personal T1 Generals and Notice of Assessment Income Tax Return.  If Incorporated two years financial statements too.  The two year average of the personal tax returns is then used to determine your borrowing power.  If the income is enough to support the mortgage you need, then you as a borrower, can put down as little as 5% for a purchase, refinance up to 80% of your property value, purchase rental properties, and even access secured lines of credit.  You are treated just like a borrower on salary or hourly income. Documents required are:

• Proof of self-employment for at least two years such as business license, Articles of Incorporation.

• 2 years personal tax returns to confirm income and no taxes owning and if incorporated two year financial statements too. If taxes are owing, they need to be paid before the mortgage closes.

Borrowers who qualify based on non Tax Retrun income:  

One challenge that can pop up with self-employed borrowers is their personal net tax return income is not high to carry the cost of their mortgage they require. Self Employed borrowers get to write off their expenses against income however, as a result, their net income is reduced below the actual real income/gross income. These borrowers can fit into what we call, the Self Employed Stated Income Program or.  A borrower can state their income rather than have to prove it on paper.  The Income stated has to be reasonable based on the type of employment. Usually 90K is the cut off therefore, borrowers needing to state more will need to show financial statements or borrow from a more high risk lender.

If the income is reasonable and the lender accepts the income, other documents required would be:

• Proof of self-employment as per above and last year Notice of Assessment to show no taxes owning. If taxes are owning they need to be paid.
• Minimum of 10% down to purchase a property
• Can refinance up to 80% as well but mortgage needs to be insured. To avoid insurance, the loan to value has to be 65% or less.
• It is rather difficult to purchase a non-owner occupied investment property under the Stated Income Program. The borrower would need to borrow through a higher risk lender.  Secured lines of credit are not available unless through a higher risk lender.

In today’s market we are finding that more and more self-employed clients who are not showing enough income on their NOA’s to support their mortgage need to go through an ALT- A lender. Typically it means a minimum of 20 % down payment and rates are about 0.50% to 1% higher with an additional 1% fee. It is not the end of the world, in a market where mortgage rates are still very low paying in the 3% range for your mortgage is cheap. As a rule of thumb we stick to a 12 month term if we place clients with an ALT-A lender giving them the opportunity to switch over to the A side upon renewal. The client is able to qualify with an A lender at the end of the 12 month term if their NOA income has increased, the mortgage rules have lightened up or a combination of both.

Contact Robert Clancy today to find out how to take full advantage of this program:

Robert Clancy, AMP,

Mortgage Agent

SAFEBRIDGE Financial Group

Tel:  416 899-1467

Fax: 1866 385-4049

Email: robert@safebridgefinancial.com

www.bestratesmortgages.ca

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1. Income Qualifications and Supporting Documentation required; when you are obtaining a mortgage for the first time, you will need to provide specific documentation in regards to your employment situation. For salaried individuals, typically an employment letter, recent pay stub, and 2 years notice of assessments are usually enough. If you are self-employed, the lender will require 2 years notice of assessments, 2 years T1 GENERALS (tax returns), and company financial statements for the last 2 years if incorporated. Typically some documents are asked for such as: 2 years statements of business account, articles of incorporation, and business license.
2. Appraisal; An appraisal is performed by an appraiser who is a licensed, regulated professional who will come and evaluate the price of your new home. Most lenders that you go with will request this as they want to confirm the purchase offer price is in line with what the property is actually worth. This is not a cost that is covered by your lender and it must come out of pocket. The typical appraisal ranges from $300-$500 dollars, depending on the size of the property and what is being assessed. We [the mortgage brokers] contact the appraisal company on your behalf to schedule a time. Typically from there, the appraiser will contact the real estate agent who is the listing agent for that property to schedule a time to appraise the property.

In regards to determining what usually dictates the need for an appraisal are the following: If your mortgage is high ratio [down payment is less than 20%], then no appraisal is typically required. If your mortgage is conventional [20% down payment or more], then typically it is required. Self-employed individuals and properties bought as rentals always typically require an appraisal as well.

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New to Canada Program requires minimum of 5% down.
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What is Private Mortgage Financing?

Private Mortgage Financing can occur when the borrower has to obtain financing outside of the traditional lending sources, i.e. Banks, credit unions, trust companies. The private lenders can be individuals who are searching for a better return on their money or, companies specifically, designed for these purposes.   Private financing is not shady as the bad criticism it may receive. It represents a large portion of the mortgage financing industry here in Canada and provides another option for Canadian borrowers.
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High ratio or 25 year amortization 5 year variable at 2.50% and 5 year fixed at 3.34%.  Conventional mortgage over 30 years 5 year variable 2.85% and 5 year fixed 3.64%

The fixed rate has being bouncing around for the past 12 months.  I would say in last year it has been as low as 2.89% and as high as 3.74%.  This is mainly down to Bond and stock markets.  When people sell bonds mortgage rates go up.  With Trump getting into to power there’s been a constant back and forth swing in the market especially over past 3 to 4 months.  These rate swings have nothing to do with our economy.  Once things settle down again in the rates will settle back down.

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One of the very few benefits that has come out of the new mortgage regulations and rules changes are the Mortgage Switch Opportunities.

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Appraisal is simply an expert opinion from a state-licensed professional on how much the value of the property really is. An appraiser uses many factors when determining the property value. They do a full detailed report and explain on how they came up with the property value. The first step is to physically examine the property inside and out to see which features bring up the value. They also look at location and recent sales around the property at question and provide anywhere from 3-4 comparables in order to better determine the value. These properties have to be very similar to the property being appraised; to specific components such as: lot size, square footage, garage type, finished or unfinished space, etc.
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What is a conventional and high ratio mortgage?

A conventional mortgage is where the buyer provides a down payment of 20% of the purchase price. In other words the mortgage may not exceed 80% of loan to value. Mortgages that exceed this limit are called High ratio mortgages.
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Quick video on mortgage renewals.
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