Self Employed Mortgage Options
We have many years of experience specializing in self employed mortgage options for our clients in Calgary, throughout Alberta, and Canada. Mortgages are made up of a sum of our down payment, credit, and income. In the case of many self employed clients, they have the flexibility to show less personal income in lieu of their write offs in the case of a sole proprietor, and retained earnings in the case of a corporation.
For self employed mortgage lending in Canada, many lenders have specialized and unique programs that allow for more flexible income underwriting in lieu of stronger down payment and good credit.
The government, through their bill called B-20, has made changes that lenders have since implemented, this has placed much stronger restrictions upon how lenders determine reasonable income for self employed clients. The below options are assuming we do not fit the “traditional income ratios”. Prior to the government changes we would often confirm that our clients were self employed and the length of their self employment. After that we would use a “reasonable” income based upon their industry and proceed with their approval. This methodology has unfortunately since changed, we have included below the current flexible self employed mortgage options.
Insured self employed mortgage option with as little at 10% down payment:
Through two of the mortgage insurers in Canada we have a program where we are able to state a reasonable income for our clients who have been self employed for over two years. Lenders will typically ask us for your most recent personal tax return along with your company financial statements so that we can ensure that the income stated for your approval is what they would consider reasonable.
The minimum down payment is 10% from your own savings or investments, and we often receive best rates and terms however the disadvantage is that the insurers increase their insurance premiums for this program. The insurance increases from 3.6% with a traditional income verified mortgage to 5.4% due to the flexible nature of our income. This program is also available with 15% down payment with a reduced insurance premium of 3.35%.
The “behind the scenes” insured mortgage option with 20% down payment:
Several of our lenders offer this self employed mortgage solution, they will often offer it with good rates that are a bit above best rates and terms.
How the process works is the lender will approve your 20% down payment mortgage based upon similar guidelines to the “Genworth and Canada Guaranty insured mortgage option with 10% down payment” above. Once the lender approves it they submit it to the insurer for their approval, typically as the down payment is increased the insurer has a bit more approval ability than with 10% down payment. Once the insurer approves your mortgage the lender will issue an approval as well. The reason why we refer to this as the “behind the scenes” insured mortgage is the lender will often not add the insurance to your mortgage, rather they will increase your interest rate from best rates to good rates in proportion to the insurance amount that they are paying on your behalf. We also have some lenders who choose to offer you best rates and terms and instead simply add the insurance premium of 1.9% of your mortgage amount to your mortgage.
This product can be very helpful as there are often fewer location restrictions and we receive excellent rates and terms.
The self employed specialized 20% down payment mortgage option:
This is one of the more flexible self employed mortgage options in Canada. For qualification these specialized lenders follow a reasonability test for your income. The test includes two components: determining if your industry tenure and income makes sense, and then reviewing your most recent one to three months of personal or business bank statements. With these bank statements we will then add up your deposits to determine your annual income.
For example: If you have deposits of $4000 for January, $7000 for February, and $6000 for March, a three month average of $5666 would give us an annual income for you of $68 000. This is an advantage to our self employed clients as it uses your gross income and does not include any expenses or deductions.
The pricing for this product is usually about 1% above best rates
The self employed 35% down payment mortgage option:
This option used to be quite prevalent with most lenders offering an equity based mortgage with best rates and terms at 65% loan to value. With the government instituting the B-20 guidelines that require enhanced due diligence for lenders in terms of income verification requirements most lenders cancelled their program. We still have a hybrid version of this program where we are able to consider approval for clients at 65% loan to value with little to no income verification provided they have assets in the amount of 1.5 times their mortgage amount. The pricing for this product is typically best rates and terms.
For example: If we have a client who is purchasing a $600 000 home and asks for a $390 000 mortgage, and if we are able to show that our client has $585 000 in assets in addition to their down payment we are often able to approve them with best rates and terms. These assets can include equity in other real estate owned, stocks, bonds, and RSPs. Typically the lender will ask for some of these assets to be somewhat liquid – essentially it cannot all be from real estate equity.
A couple of additional self employed mortgage lending notes:
*Some lenders will either reduce the loan to value or not provide financing on apartment condos with these programs.
*Many of these programs have maximum loan amounts ranging from $600 000 to $750 000. We are often successful in obtaining mortgage approval at higher amounts for our clients however lenders will typically ask for additional business income confirmation to ensure there is a good lending fit.
*We have some lenders who will not ask for confirmation of your personal taxes being paid up to date
If you are self employed and are interested in purchasing a new home or refinancing your current home it is very important that you work with a broker who has the knowledge, experience, and lender relationships to ensure your mortgage is structured and presented properly. The structure and presentation can sometimes be the difference between being approved for your mortgage or being declined. Please feel free to contact us via phone, online contact form, or by applying online.