If you are self-employed you can get 95% financing and you can get a fully discounted rate even if your income is difficult to prove.

It is true, but it is not as simple as going into the bank and applying.

There are some common questions about getting a mortgage if your self employed, which we will address below:

Are There Limitations on the Maximum Amount of Financing?

Yes, even the most aggressive lenders will generally only lend 95% of the purchase price for a self-employed individual. However, each situation is unique, and there are ways around these rules if your mortgage application and finances are structured appropriately.

In either case, you will need to have an excellent credit repayment history, proof of down payment, but not always proof of income.. Each of these elements is important and warrants some discussion. If you have requested some of the other reports on my site, you will be aware that, in Canada, lenders often look at an applicant(s) beacon score (credit score) as the premier indicator of the quality of a borrower. A beacon score has a theoretical minimum of 300 and a theoretical maximum of 900. The truth is, no one sits at either extreme and most people fall in the range of 450 (for those with serious delinquency) up to around 850 (for those with credit that is paid out in full every month). However, the average credit score of most applicants falls into the range of 620 to 680. I would recommend trying to get your score up over 700 and 720. This takes time, but can be accomplished with the help of a person that knows how the credit bureau works. A mortgage broker is just such an individual.

As stated above, you will want to have a credit score that is excellent to qualify for a high loan-to-value ratio (LTV). The LTV is the amount of the purchase price that is financed by a mortgage. For example, if the purchase price is $100,000, and you are seeking to put only $5,000 (or 5%) as a down payment, then you are, in effect, seeking a 95% LTV mortgage. Although there are lenders that do 95% LTV mortgages for self-employed individuals, they are not typically the banks (exceptions do exist), and usually require a beacon score in excess of 680 (varies with lender – speak to your mortgage broker for details).

Will You Get a Fully Discounted Rate?

This is not a simple question, but it is the first question that we get asked as brokers. The final rate that a lender offers is based on a huge number of factors such as stability of income, source of down payment, amount of down payment, loan-to-value of the mortgage, and credit repayment history. It is not a simple yes or no answer. However, some programs available for self-employed individuals will allow a fully discounted rate if you meet certain lending criteria such as a well established business, good credit history, and a down payment equal to 10% or higher. If you do not have 10% as a down payment, there are lenders that will still entertain your loan. This realm of lending is trickier and has more arcane requirements to prove your income and approve the loan. Speak with a qualified mortgage broker to ensure that you have a skilled professional acting in your best interest. The multiple criteria are far beyond the scope of this report. Bottom Line: A fully discounted rate IS available for a self-employed individual with good credit.

What is a Fair Rate if I Don’t Meet All Lender Requirements?

Full discount is generally 1.35% off of the posted rate on the bank’s website. For a self-employed individual that is unable to meet all requirements, a fair rate might be 0.50% off the discounted rate depending on the circumstances but can run as high as Prime + 3%. There is no hard and fast rule, and your broker will fight to get you the lowest rate that is possible. Your broker will definitely be able to get a fully discounted rate if you can supply the required documentation. However, as a general rule, if you are unable to meet one of the lender requirements, you can expect a rate only slightly higher than that paid by someone with perfect credit, solid, provable income, and excellent job security. Half to one percent would be a fair approximation of the rate premium.

Lenders usually look for the following facts to be clear and provable:
1. The source of the down payment
2. The source and amount of income
3. The length of time the person has been receiving the income
4. Clean credit
5. Solid, clean, prime real estate

If any one of the above is missing (such as #2 for a self-employed person) then you will need to take advantage of one of the many programs available or you will likely be looking at a premium to the rate.

In this situation, the old cliche, “honesty is the best policy,” should be taken to heart. Disclosure of all facts about credit history and income up front will make this process much easier and faster when seeking a timely approval.

What if My Income is Difficult to Prove?

Canadian lenders are becoming increasingly aware that much of a person’s income might be earned in cash or from other undeclared sources. Furthermore, the cash flow into a household is often more than just the sum of the various wage earner’s bi-weekly salary. There are several methods of qualifying a self-employed individual. Some of these programs are called “Alt Doc” programs (for alternate documentation requirements) or “Stated Income” programs whereby a self-employed person makes a declaration of income and the bank takes them at their word as long as they can prove that they have had a business established for 2 to 3 years (varies with lender). Banks are aware that a person will likely not take a mortgage if they know they cannot afford it (although borrowers can get over exuberant when a dream house is involved). Therefore, they won’t declare more income than they really earn as it would be a financial disaster for them to do so. It is important during this process only to declare your real income!

ALTERNATE METHODS OF QUALIFICATION

Normally, a bank will want to see your T4 from your employer, a job letter from your employer (confirming job, tenure, and wage), and possibly pay stubs to confirm your income. If you are your own boss, these documents don’t exist, and even if they did they wouldn’t be accepted because you made them! In order to combat this problem a number of alternate techniques have arisen in this field:

12 Month Bank Statements – When using this technique, a lender will take a look at bank statements over a 12 month period of time and add up ALL deposits into the account: Child Tax Credit, Energy Tax Credit, Alimony, Child Support, GST Cheques, Tax Refunds, Cash Deposits, Cheque Deposits. In short, anything that goes into the account. Then, when they have a total amount of deposits for the year, they will usually assign some portion (70% for example) that can be used to qualify as income. Normally, most of the income sources listed above do NOT qualify as income. However, when using this technique, and many lenders do, they are all considered viable forms of income.

When using the 12 month bank statement, the bank is taking a risk that some of the money you are earning is not actually available for mortgage payments. As a result, they will likely charge a higher rate of interest, but will let you realize your dream of home ownership where previously it was not possible. The rationale for allowing this technique for income qualification is that it gives the lender a good idea of the true amount of cash coming into and leaving the household during any one period of time. Talk to your broker for the plan that best suits your needs.

Stated Income – This next technique takes the applicant at his/her word when determining their income for the purposes of mortgage loan qualification. However, they will demand proof that the individual has been in business for self for at least 3 years. They will usually require some sort of proof such as GST returns, annual Tax returns, notices of assessment, business licenses, permits, or other Government Issued documentation proving that your business is operational and a going concern. At no time will they seek to verify that the income you are declaring is the amount on you tax returns, nor do they report your declaration to Revenue Canada. Banks are aware that your income from all sources might not equal that on your income tax return, but given that they have no way of verifying it, they have to take you at your word and trust that you wouldn’t buy a place you knowingly couldn’t afford.

If it sounds risky for the bank…it is! In recent years, there have been several innovations in this field, and now Business for Self (BFS) individuals are able to get fully discounted rates just like someone working for 20 years at the same job earning a solid wage. This technique will require the assistance of a trained mortgage broker to show you which documentation will qualify for this program and what level of income is required to sustain the mortgage.

Equity Programs – Under this program, the income of the individual is not verified, and the decision to lend is based solely on the marketability of the property being purchased (or refinanced) and the credit history of the borrower. If the person has clean credit, and at least 25% down payment (or equity) then mortgages are available without the usual T4, Notice of Assessment, Job Letter, and pay stubs.

Many programs like this are readily available. By taking the time to learn these small facts and reading this report: How to Buy if you are Self Employed, you now have an overview of the programs available.

Please request the other reports for self employed individuals as they will teach you specifically in step by step instructions how to set up your finances to satisfy the bank requirements.

Any such mortgage will need to be structured by a qualified mortgage professional. Aleem Peermohamed is just such an individual with the experience and dedication to get this mortgage approved at a competitive rate within tight time lines. Contact him at 778-233-2377 any day of the week and he can walk you through the process.

Being self-employed in the past often meant difficulty in getting an approval for a mortgage. Recent innovations in mortgage lending in the Canadian market have made this process as simple as that encountered by someone who has been working at the same job, paying taxes, for 25 years. Talk to Aleem Peermohamed today and realize your dreams.

APPLY NOW

If you think you would like to apply and take advantage of Aleem’s experience, professionalism, availability, and Free services, please call 778 233 2377, or email [email protected]

I could direct you to an online application, however 9 out of 10 times I am calling you back to follow up and get clarification, so my thoughts are that we might as well start with a phone call and if you want, we can build your application right then and there.