Getting a mortgage in Canada when self-employed can be obtained pretty easily if you have a credit score over 680. Today, things are a little more complicated for the entrepreneur as lending rules have tightened and banks are not keen on financing non-traditional borrowers.
The global economic meltdown forced countries to take a critical look at the level of risk lenders were taking. By 2012, the Office of the Superintendent of Financial Institutions introduced the B-20 guideline requiring federally regulated banks to tighten up their lending processes. Mortgages for business owners were just one of the practices affected.
Business Owners Have a Higher Net Worth
While Statistics Canada data suggests that self-employed workers actually have a higher median net worth than salaried employees. Much of one’s self-employed income does not show up on paper. Entrepreneurs want to decrease their earnings to avoid paying tax and cut their income through legitimate expenses and personal deductions.
In the past, self-employed workers were given leeway and asked to fill out a signed income declaration and proof of self-employment. Today, self-employed workers can still apply for one of these “stated income” mortgages at some banks, but the lending limits have changed. Federally regulated banks can only lend entrepreneurs up to 65 percent of the purchase value. Financing higher than that requires mortgage default insurance through one of the three mortgage insurance firms in Canada. Many high net worth business owners with low stated incomes usually turn to private mortgage lenders for financing. This usually occurrs when the banks turn them down for a conventional mortgage.
If you are self-employed, a mortgage broker can help you with this. The requirements for mortgage insurance and particular lenders vary. They are in the know and they have access to a broad range of products. One major change recently was that one of three big mortgage insurers no longer allows stated income applications. All applicants must now meet standard verified income requirements. However, credit unions are still an option as they were not affected by the B-20 changes. You may still be able to get a mortgage with a value of up to 80 percent without the need for default insurance.
Certain lenders also allow you to add some of your deductions back onto your earnings. One of the big three mortgage insurers, Genworth, has a program for those who cannot provide traditional income verification and have been in business for at least two years. Income is based on a reasonable amount for your business and sector. These types of products and the availability of allowances can make the difference between approval and rejection of your application. Incorporation is also an option. Drawing a salary looks good on paper and lenders look at it as a lower risk. This option may also provide tax benefits and personal protection from liability.
Learn Your Mortgage Options
If you are looking to find a mortgage, organize your paperwork. Most lenders require two years of financial statements, your latest notice of assessment from Canada Revenue Agency, proof your GST and HST are paid, your credit score and proof that you are the owner of the business. To get a mortgage in Canada when self-employed contact one of our mortgage professionals today. They will walk you through the papers that you need and can help you find a product, even if you do not have a traditional job. Being self-employed need not be a deterrent to buying a property.