Good afternoon Montreal Real Estate world. Today, I am reviewing an article that caught my eye in the National Post entitled "The bank said no - now what?" Susan Smith does a great job painting the current mortgage landscape and impact of the post-2008 Federal Government rule changes. However, I'd add a couple things. Susan Smith discusses how the rules changes have impacted certain consumers, I shall solely focus on the self-employed.
The Self Employed: Okay, here is the unplugged truth for anyone self employed. Is it really harder for self employed people to qualify for a mortgage? I'd say it depends on your specific circumstances (declaring income and credit quality are the usual suspects). According to Susan, "The government...tightened requirements for the self-employed, requiring independent validation of income statements." In other words, the Federal Government is forcing the self employed to declare more income on their income taxes. It is much harder to get a mortgage with an "A-lender" under the self employed program without declaring anything reasonable. For example, the most common insured self-employed program would be Genworth's Alt-A program. They require strong credit history, a +680 score, incomes taxes to be filed and up-to-date for 2 years, and no income tax arrears owed. Generally, when applying for a mortgage your income declared on line 150 of your notice of assessment can be multiplied by 2-2.5 of the stated income. Usually, this type of financing referred as "common sense financing." In other words, say you are a plumber or electrician declaring $45,000 personally hence we may be able to an auto-declared income under this program at $90,000 in order to qualify for your mortgage. In such cases your mortgage would incur an extra mortgage insurance premium.
As the article points out, there are alternative lender options like Home Trust or Equitable Bank that exist. Using an alternative bank the interest rate can be between approximately between 3.89-6.99% depending on the term. Rates here as understandably based on risk. The "country’s 2.75 million self-employed workers – a group that, according to Statistics Canada, has a higher median net worth than paid employees." Self employed individuals are made out to sound more risky compared than salaried individuals. The self employed must declare more income whether we like it or not. Sometimes it makes sense to work with an alternative lender for 1-3 years but with a mortgage plan you can switch to an "A -lender" thereafter depending on your circumstances.
The article mentions private lender, I shall write a separate blog entry on that subject.
The Self Employed: Okay, here is the unplugged truth for anyone self employed. Is it really harder for self employed people to qualify for a mortgage? I'd say it depends on your specific circumstances (declaring income and credit quality are the usual suspects). According to Susan, "The government...tightened requirements for the self-employed, requiring independent validation of income statements." In other words, the Federal Government is forcing the self employed to declare more income on their income taxes. It is much harder to get a mortgage with an "A-lender" under the self employed program without declaring anything reasonable. For example, the most common insured self-employed program would be Genworth's Alt-A program. They require strong credit history, a +680 score, incomes taxes to be filed and up-to-date for 2 years, and no income tax arrears owed. Generally, when applying for a mortgage your income declared on line 150 of your notice of assessment can be multiplied by 2-2.5 of the stated income. Usually, this type of financing referred as "common sense financing." In other words, say you are a plumber or electrician declaring $45,000 personally hence we may be able to an auto-declared income under this program at $90,000 in order to qualify for your mortgage. In such cases your mortgage would incur an extra mortgage insurance premium.
As the article points out, there are alternative lender options like Home Trust or Equitable Bank that exist. Using an alternative bank the interest rate can be between approximately between 3.89-6.99% depending on the term. Rates here as understandably based on risk. The "country’s 2.75 million self-employed workers – a group that, according to Statistics Canada, has a higher median net worth than paid employees." Self employed individuals are made out to sound more risky compared than salaried individuals. The self employed must declare more income whether we like it or not. Sometimes it makes sense to work with an alternative lender for 1-3 years but with a mortgage plan you can switch to an "A -lender" thereafter depending on your circumstances.
The article mentions private lender, I shall write a separate blog entry on that subject.
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