Self-Employed Mortgage Options

Mortgages Gert Martens 22 Jun

Trying to get a mortgage when you are self-employed can often feel like a struggle, especially when it comes to verifying your income. Lenders look at your credit report as well as your income to determine how high of a credit risk you may be. This means having to submit extra documentation in many cases. However, being self-employed doesn’t mean you can’t get a mortgage just like other homebuyers. There are options and programs available and our Alberta mortgage broker team is here to walk you through them.

Prime Mortgage Loan 

A prime mortgage is based on your actual earnings. You are basically showing that you have paid yourself and that you have declared enough income for a 2 year period. This is a good option if you have good credit, can show that you have managed your debt really well, and your credit history goes back for at least 12 months. You’ll also need to make sure that you have properly filed your tax returns and don’t owe any money to the CRA. A lender will start by looking at Line 150, your stated income, on your tax return. You can qualify for up to 5 times your stated income in many cases.

For the Newly Self-Employed

What happens if you have only been self-employed for less than 2 years? Does it mean you can’t qualify for a mortgage? The short answer is no. CMHC offers a lending program aimed at those who have been self-employed for under 2 years or less. When you have worked for an employer for a few years and then move into self-employment, your tax return will show income that is much lower. The program from CMHC allows you to show what you could potentially make based on your bank statements and contracts for work, rather than relying on your tax return.

The CMHC program is only available with a maximum term of 25 years and purchases that are under $999K. You will also need to have good credit.

Stated Income Mortgage

This type of mortgage is best for self-employed people who have a gross income but has that income lowered due to expenses and aren’t able to meet the loan qualifications. Lenders will use a figure between your gross income and net income (lines 150 and 236 on your tax returns) and come up with what is called an “Income Reasonability” figure that helps you to qualify. In order to qualify for a Stated Income mortgage:

  • The purchase price needs to be under $999K
  • The property needs to be owner-occupied and not rented out
  • You will need to make a down-payment of at least 10% 
  • 5% of the down payment needs to be funded by you and not fully gifted.
  • You can’t have any late payments over the past 12 months.
  • You must not owe the CRA any money and tax returns need to be filed accordingly

Alternative Lenders 

If your credit isn’t that good or you don’t make enough income to qualify for a traditional loan, you can use an alternative lender. With this option, you are able to use alternative ways to prove your income, such as with invoiced, bank statements, and work contracts. However, you will be charged between 0.5% to 1% more than with a traditional loan, are charged a closing fee, and the policies for appraisal tend to be stricter. 

Financing Through Credit Unions

This option sits between traditional and alternative lenders. To qualify, you need to show them at least 3 months’ worth of business statements, 2 years’ worth of tax returns, and the interest rates on this type of loan are usually higher than traditional mortgages. You are also able to buy properties that are over one million dollars.

Private Lenders

If you aren’t able to get approved for a mortgage through the above options, you could look into using a private mortgage lender. While private lenders aren’t as concerned about your taxes, income, and whether you owe money, they will charge a lot more and should really only be used as a last resort. 

If you are self-employed and want to know what mortgage options you may qualify for, give our Alberta mortgage broker team a call today!

How To Build Your Credit

Mortgage Tips Gert Martens 22 Jun

Having a good credit score and credit history will play an important part when applying for any type of credit, such as personal loans, credit cards, car loans, and mortgages. Many people who have a very short credit history and are trying to build or repair their credit are often faced with the dilemma that you need credit to get credit. There are things that you can do to help you along though, and our Alberta mortgage broker team is here to help.

Open a Bank Account

This is probably the first, and most important step toward building your credit. When you open a bank account, you are getting your foot on the ladder towards a better credit score. We suggest having one checking account and one savings account. If you do have a checking account, you need to be careful and make sure none of your checks bounce or that it doesn’t become overdrawn. This is especially important in the early days of building your credit. The purpose here is to show lenders that you are responsible when it comes to handling your debts. 

Getting Bills In Your Name

When lenders review your credit history, they will look for accounts that are in your name, including things like electric, phone and gas accounts, as well as a lease on an apartment. Again, it’s really important that you don’t miss payments or make payments late with these accounts because they will impact your credit in a negative way. 

Stable Employment and Residence History

Another two areas that lenders will review are your residence history and employment history, especially if you haven’t yet built up credit. What they are looking for is steady employment and residency. If you seem to be going from one job to the next over a short timeframe or have a long period where you have been unemployed, it can be a red flag. It’s the same for your residential history. If you seem to be moving around a lot and switching jobs, it can seem as if your situation is too unstable.

Apply For Gas and Store Cards

Once you get your credit history going, you can try to apply for a gas or store card. You’ll find a lot of major stores that have their own lines of credit, such as Target, Macy’s, and JC Penny. It’s a bit easier to get approved for this type of card in the beginning, than a major credit card. Many gas stations offer their own line of credit as well. However, you need to check that these lines of credit are being reported to the credit bureau. If they aren’t, it defeats the whole purpose of building your credit and they aren’t worth applying for. 

Secured Credit Cards

Once you have built up your credit a bit, have shown your situation is stable and that you are able to deal with your credit responsibly, you can try to apply for a major credit card, such as a Visa or Master card. If you aren’t able to get approved for these, you should talk to your lender or bank to see if they have a secured credit option that you can qualify for. The amount of credit you get on these matches what is in your bank account. 

Loans

Qualifying for loans will help with building your credit history faster. Loans tend to be based on your annual salary and you have to make sure that you don’t miss or be late on making your repayments. Otherwise, it will have a negative impact on your credit score.

It’s isn’t impossible to build up your credit, but it does take some patience and work. The most important thing to remember is to always make your payments on time each month. This goes a long way in showing how responsible you are with your debt and credit.

If you want more advice on building up your credit, give our Alberta mortgage broker team a call today for more helpful tips.