After the 2008 financial meltdown, the government took aim at high risk mortgages to ensure Canadians didn’t suffer the same fate as the US and their housing market. Unfortunately one of their main targets was self-employed individuals due to their higher rate of default. The government was able to push through several waves of mortgage restrictions that would require lenders to better qualify their perspective clients.
Self-Employed in Canada
The discouraging part is that self-employed individuals make up approximately 2.75 million of the Canadian workforce and the market segment continues to grow; adding more than 35,600 jobs over the past year. Additionally Statistics Canada claims this group has a higher median net worth than paid employees. I think it’s clear to see that the self-employed job market is a key source of economic growth in the country.
How this Impacts Me?
Now back to reality, gone are the days that a client with a credit score of 680 or higher could obtain a mortgage with little or no documentation. Banks are forced to scale back their offering to this type of client. Most are now being turned away at their banks and are looking for new lending opportunities.
This all stems back to federal guidelines introduced to regulate Canadian banks, requiring that lenders take a much closer look at income sources before approving a mortgage. This plays negatively for self-employed individuals who typically show a lower income due to maximized business expenses and deductions.
In the past self-employed individuals could obtain a mortgage through a “stated income” program where they would simply need to show that they had a business registration or articles of incorporation and sign a declaration indicating their estimated income. This program has been reduced to 65% loan-to-value, which means that to purchase a home the buyer would need at least a 35% down payment.
So what is one to do?
Well there are a few options:
Credit unions, who are regulated provincially, can still offer “stated-income” up to 80% loan-to-value (20% down payment), without the need for default insurance (CMHC premium).
There are also alternative lenders who will offer uninsured “stated income” mortgages up to 85% but will charge 1-1.5% rate premium to cover the additional risk and often only offer a 1-3 year term.
It is still possible to obtain an insured (CMHC) “stated income” mortgage up to 90% loan-to-value but this program is very restrictive and the lender generally needs to show enough cash-flow (via business account statements, Revenue Canada T1 Generals or personal Notice of Assessments) to validate the income stated. Generally the banks stay away from this type of mortgage but there are a number of trust companies and credit unions that aggressively target this type of business.
So as you can see the path to obtaining a mortgage for a self-employed individual is not a direct as it used to be. It would be in your best interest to find a good, experienced mortgage broker to sort out the proper path to find the “best” mortgage to suit your situation. The greatest advantage about using a Barrie mortgage broker is that their services are normally “free”. A broker only get paid if they find a mortgage that you’re happy with. So what do you have to lose?
Who Can Help?
Unfortunately, all brokers are not alike; you need to find one you trust, is knowledgeable & has plenty of experience in finding great mortgages. Long-term brokers have had a chance to build relationships with many of their lenders which tends to ease the approval process. A face-to-face meeting early on is highly recommended and you’ll find that communication is key in the mortgage approval process. A broker that will take calls or meet after-hours or on weekends is definitely a bonus.
When using Darren’s broker services you’ll find someone who is professional (Georgian, Laurentian & Ryerson graduate), locally focused (Rotary Club of Barrie, Barrie Chamber of Commerce committee member, sports coach), experienced (more than 5 years in the industry) & reputable (AMP designation, CAAMP member, IMBA member).
If you are looking purchase a home or investment property, refinance, consolidate debt or renovate contact Darren to find your “best” Barrie mortgage; use the broker who “knows”! Call 705-302-3430 or fill out this contact form to get a consultation today.