Wednesday, May 25, 2011

Self Employed Mortgages

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I should have made this post weeks ago, as many people are switching their careers to self-employment to gain more control of their life. Contrary to popular belief getting a mortgage while self-employed is not as hard as you may think. I have heard people thinking they need 20% down, they have to pay higher interest rates and even heard that “B” lending is their only option.

I will explain the easiest way for the self-employed to get a mortgage first. If you have been self-employed long enough to have two years’ worth of taxes completed, owe no taxes and have claimed sufficient income to qualify for what you want to purchase. You will fall into the same category as anyone who is employed with a regular job, you can buy with 5% down. The only difference is the document collection, instead of us asking you for a job letter and paystub, we will want two years NOA’s and your T1 Generals. We do add 15% to your income to offset the amount you have paid in taxes. The same mortgage insurance fees apply if you are putting down less than 20% and you can still get the best rates. Always ask a broker up front if there will be a fee, in this case there shouldn't be.

If you haven’t claimed enough income and do not qualify to purchase a home there is still an option for you. With less than 20% down the mortgage insurers have a self-declared income program. Basically you make up a number for your income, but don’t get too carried away we will have to provide your business financials to back it up. We will still need your NOA’s to show that no taxes are owed. With this program you need a credit score of at least 680 and a minimum of a 10% deposit. You do have to pay a higher CMHC premium, but I guess that offsets the amount of money you have saved in taxes. When clients complain about this premium we basically tell them to redo their taxes and show enough income to qualify without the self-declared program. They always pay the premium, which is just added to the balance of the mortgage. Again there should be no fee for this service.

The third way to get a mortgage as self-employed can have a book written about it. There are many variables that come into play. But basically it is a conventional mortgage or an equity mortgage which is a mortgage with 20% down or more and is uninsured. With these types of mortgages there is more risk to the bank because they are not insured by the default insurers; however, the larger the down payment the less risk there is for the lender. The rate you receive on these mortgages will depend on your credit score and size of deposit. With an equity mortgage almost anyone can qualify if the down payment is large enough, self-employed, bad credit, taxes owed, commission earnings and to be quite honest, you can have no income at all. If you do fall into this category don’t think you are alone, there is plenty of people here. There is an entire industry in the mortgage world based around this type of lending. This type of mortgage often requires a fee from a broker, make sure you ask up front what it will be, do not find out what it is the day you sit to sign the mortgage papers. "B" lenders often do not pay the brokers very well compared to the amount of work required to put one of these mortgages together.

I have just explained the basics, if your situation requires a little special attention feel free to contact me and we can send you in the right direction. If this has been a help to you, please let me know. Be the first to comment.

Ron Miller
Butler Mortgages
905-667-0699
ron.miller@butlermortgages.com

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