The stated income mortgage market is continuing to evolve with more lenders breathing new life in this lending space which for the most part had been abandoned by several lenders over the last year or so, or at least the available programs have failed to resemble what was previously available to self employed individuals.
At the present time there are some solid and continuing to develop products in the market with the best in class providing up to 90% loan to value on new home purchases.
You can get up to 65% loan to value without mortgage insurance and anything over 65% to the 90% ceiling will require mortgage insurance.
Both fixed and variable rate options exist as well to provide greater flexibility to each borrower.
The main qualifying criteria are that you need to be able to prove that you’ve been in business for at least two years, that you have very good credit, and the cash you’re putting in for the down payment is from your own resources.
There is some greater flexibility today in the documentation lenders will accept to support your stated income. The key is that there must be a certain amount of reasonableness in the income declared and the means to which it can be supported. Gone are the days when the lender will take your word for it which only makes sense in terms of anyone making a proper lending decision.
One of the bigger challenges to some business for self individuals is the maximum loan amount they can secure.
For larger urban centers such Toronto or Vancouver where real estate pricing can be fairly high, some of these programs will not be able to provide enough financing to fit your requirements even if you could otherwise satisfy all their other lending and funding requirements.
The upper limits to stated income mortgages are also likely to increase provided that lenders experience a low occurrence loss, default, and payment arrears.
One of the real keys to getting the best stated income mortgage deal available to you is to put forward a very strong and complete information package to targeted lenders. This increases the possibility of greater flexibility being provided on acceptance of documents that you have available to support your earnings.
In order to put together a solid application package, it can make a great deal of sense to work with an experienced mortgage broker who can not only help you put everything together, but also identify the self employed mortgage programs in the market that best fit your particular circumstances and requirements.
There definitely is a certain amount of art and science to stated income mortgages, so being able to draw on some know how and experience can make a big difference.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh For A Free Assessment Of Your Stated Income Mortgage Options
The self employed mortgage market or business for self as its come to be known, is a continually growing segment of the overall mortgage market as more and more people move to self employment either by choice or through force via layoffs, downsizing, etc.
In recent years, the banks and other institutional lenders made a considerable play towards securing more of this available market share with mortgage programs that could be qualified for without a great deal of proof with respect to your ability to repay.
That has changed significantly with mortgage rule changes tightening up on business for self mortgage programs causing some of the main line lenders to either significantly revamp their programs or drop them completely.
Much has been written about all this and how it is now more difficult and potentially more costly to get a self employed mortgage, especially if you are relaying heavily on a stated income approach.
While the rule changes will continue to cause some transitional problems for some, lets focus in for a minute on the essence of the rule changes.
The reasoning for tightening up mortgage requirements for the self employed was that the financing being provided at times was not always reasonable with a borrower’s ability to repay the mortgage, or it at least wasn’t very clear.
Matching borrowing risk to lending decisions is important to the borrower, the lender, and the industry as a whole.
So any changes that are made that move towards being able to more accurately assess risk is likely going to help protect this form of lending for the long term.
With stated income mortgages there is now a greater requirements to 1) prove you are making the money stated, 2) prove that a history of this type of earnings cash flow exists, and 3) prove that what you’re making now will continue into the future.
Lenders are also looking at industry statistics related to what different occupations make to better gauge what a reasonable range would like be if income cannot be fully verified.
So, yes, there is now a greater burden of proof on the self employed borrower to support their income claims. This can also be done through a variety of different ways that will depend on your specific business and the work you are preforming. For instance, active contracts and outstanding purchase orders are further support of on going cash flow. Business financial statements including accounts receivable details can further build the case.
While the lender focus is typically going to be related to the money you took out of your business, the overall business performance is still going to be important.
Bottom line is there is more work involved in getting the best rates possible for business for self mortgages and some of this additional work can translate into more record keeping and forms of disclosure that help support your application.
With some additional work to better prove your earnings, lower rates are still available which makes the process of getting the lender more comfortable with your stated numbers worth it in the long run.
If you’d like to better understand your self employed mortgage options as well as get some expert assistance in building an effective financing package, then I suggest that you give me a call so we can go over your situation together and discuss the different approaches you can take.
And while there still remains an ample supply for the “Business For Self” of self employed mortgages, the qualifying has become more difficult and the cost, in many cases, higher.
If we go back a few years, the self employed mortgage industry was tagged as major growth market by the primary mortgage lenders with virtually every lender coming out with their own set of programs both for verified income and stated income situations.
And for a period of time, it was almost too easy to gain access to a considerable amount of capital for mortgage financing, at excellent rates, without a whole lot of proof as to whether or not you were in a good position to pay it back.
But with the collapse of the sub prime market in the U.S. as well as Global financial problems have caused the Canadian regulators to to intervene on many mortgage rules and criteria, including stated income mortgages.
The result has seen many lenders completely abandon stated income programs and others putting more meat and qualifying requirements into the process.
This may be viewed as a case where the pendulum swung too far in favor of too easy an access to lower rate mortgages and that now we are in an environment where the market is providing mortgage services that more properly align with the related risk of a given transaction.
While this can come as a cost to many of the self employed, the changes made to date have also provided longer term stability to the overall market place and are in keeping with other mortgage changes that have been implemented to reduce overall market risk.
The good news is that supply of BFG mortgages remains solid. The bad news if you want to call it that is a larger percentage of these loans are being done in the secondary banking market where the cost of financing is going to be slightly higher.
Self employed individuals can still qualify for the lower available rates. It just won’t be as easy to qualify which has certainly put us into a period of adjustment.
What can also be confusing for business owners is figuring out which of the available stated income mortgages are best suited for them as there is quite a broad range of program offerings out there.
This is a good example of where an experienced mortgage professional can potentially add considerable value to your search for the right mortgage.
Working through all the different self employed mortgage programs is a much easier process to navigate with some expert assistance to make sure you’re not only getting the best deal available, but also that you’re setting up your mortgage financing to fit your projected cash flow now and in the future.
If you need assistance with stated income mortgage financing, I suggest that you give me a call so we can go over your requirements together and discuss the different options that are available to you.
Self employed mortgages are a significant segment of the residential mortgage market.
And over the last number of years there have been a lot of changes take place in how lenders approach this market creating a certain amount of confusion at times among existing and/or potential borrowers.
To make more information available to self employed individuals, we decided to list out the most commonly asked questions we get over and over again about self employed mortgage qualifying.
These are not listed in any type of order.
And there are certainly a lot more questions asked on the subject, but these are the most common ones.
The key things to qualify are all about the paper work.
The more detail you can provide to support your business existence and earnings the better.
Items like articles of incorporation, shareholder resolutions and agreements, business financial statements, personal income and net worth, and so on are going to be important to building your case for eligibility.
And if income verification is not straight forward, all the more reason to provide a comprehensive income package to the lender right at the time of application.
Because self employment can take on many different forms, its always good to provide as much detail as possible to give the lender sufficient background information to make a decision in your favor.
Yes, self employed mortgages can qualify for mortgage insurance.
In fact, the mortgage insurance companies have programs specifically designed for the self employed.
More specifically all mortgage insurance programs for self employed individuals fall into two categories, namely income verification and stated income.
Income verification works similar to employed mortgage programs in that the verification is specific to income you report personally for income tax to the Canada Revenue Agency.
Stated income is used when there is not enough personal income declared to meet the debt servicing requirements of the lender’s program.
There is no difference in interest term offerings for self employed mortgages.
You can get either a variable or fixed rate term provided that you can qualify for them, just like an employed person would have to.
Where there can be a difference is in the premium you may be required to pay for an insured mortgage depending on what type of program you qualify for.
For instance, an income verification program will have a lower mortgage insurance premium than a stated income program.
The income verification process is about what you have taken out of your business personally to live on.
So the focus is on your personal income tax return and the notices of assessment provided by CRA once your return has been processed.
Because business results can vary from year to year, which can also influence the funds you take out of your business, a lender could also look at a three year average of personal income to get a better picture of what the average available cash flow for debt servicing actually is.
One key to securing a self employed home mortgage is the manner in which the application is put together and submitted to targeted lenders with relevant programs for your particular requirements.
A complete and thorough application should include as much information about your business as possible so the lender can quickly get comfortable with your financial background and ability to repay the mortgage over time.
Because we are talking about self employed, the lender may not understand the business and any confusion or doubt can lead to a decline.
One of the ways to properly assemble an application package that increases the likelihood of a positive result is to work with an experienced mortgage broker who can outline all the relevant information that should be included for your particular situation.
A mortgage broker with experience securing mortgages for self employed individuals can be a valuable asset to getting the financing you’re looking for.
Self employed mortgage financing has evolved considerably over the last decade with most major lenders and many second tier mortgage lenders offering different types of self employed or stated income mortgages to self employed individuals who could not easily provide support for their annual income as compared to an employed person with T4 slips and pay stubs.
With some stated income approaches, the applicant was basically signing an statement of what their annual income was.
Certain other lenders were doing stated income mortgages under insured programs.
Much of this changed in the first week of February, 2012 when mortgage lenders altered or removed their stated income programs altogether.
There are a number of reasons for these changes, including some potential changes to lender access to CMHC insurance for these types of deals.
Regardless of the why, the reality is that if you are self employed, or cannot support proof of repayment of a mortgage through employed earning documentation, then, for at least the time being, its going to be more challenging to get a self employed mortgage approved.
That being said, the higher the equity in a property and the stronger the credit profile and net worth of the applicant, the less likely these changes are going to impact them.
But for the more common scenarios where stated income declarations and/or mortgage insurance were required to get financing in place, the process for locating and securing mortgage financing is now going to be a bit more challenging.
For instance, most of the lenders that were doing stated income are now requiring a greater degree of financial proof of earning and over a longer period of time, say three years on the average.
So its going to be more important to be able to have supporting documentation to show you have generated sufficient funds as a self employed person, regardless of how it gets reported for tax purposes, to service a given mortgage amount. And the manner in which this is further assessment is performed can vary from lender to lender as well.
If you are in need of a self employed mortgage, or would like to better understand your options and how to go about the process of acquiring one, I suggest that you give me a call so we can go over all the changes in the market together and review different approaches for meeting your mortgage requirements.
This is a slice of the mortgage market where the self employed mortgage lives and provides financing to self employed individuals who may not be able to show their income or ability to service debt in the same manner as a employee or wage earner.
Even during the recent economic slow down and financial credit tightening, self employed mortgages have remained available, but the qualifying requirements were more stringent across the board as the major mortgage lenders moved away from prime and sub prime equity mortgage opportunities.
Because these are uninsured mortgage programs, the banks will always make sure there collective house is in order before taking on a higher risk lending opportunity such as more equity based lending.
And with the majority of Canadians now preferring variable interest rates, which provides greater profit margins for the banks and major financial institutions, there is now a greater desire to branch out further into the prime equity mortgage market even though there is greater financial risk associated with it.
This is great news for self employed individuals in general, but more specifically for those that were having a hard time qualifying for mortgage funding during the last two to three years.
More specifically, some main line lenders have already softened on income verification requirements including some no longer requiring a notice of assessment to prove income.
Another way in which qualifying criteria had been increased was through higher personal credit score requirements that have also come down with certain lenders, further increasing the ability for individuals to qualify under these prime equity programs.
Each program will have its own limitations with respect to lending amount and loan to value ratios, but all in all things are on the up swing for the self employed.
Because there are several different programs on the market, each with their own unique twist for this type of business, it can take some work to figure out which self employed mortgage offering is the best fit for your personal requirements.
The best approach to the self employed mortgage lending process is to work with an experienced mortgage broker who can quickly assess your situation and financing requirements, and get you working with
the most relevant mortgage financing options as soon as possible so no time is wasted or mistakes made trying to figure out the various mortgage offerings.
Banks and other institutional lenders recognize that self employed individuals can take many different types of tax planning approaches to lower their overall level of taxation, but which can also reduce their personally declared income in the process.
And because one of the primary criteria for qualifying for an institutional mortgage is assessment of repayment ability via personally reported income to the Canada Revenue Agency, reliance strictly on reported income effectively ends up penalizing self employed individuals that otherwise are very credit worthy and have sufficient means to service the mortgage amount they’re trying to secure.
This is where the self employed mortgage programs come in. They are designed to address this segment of the market that may not be able to show what I’ll call traditional employment earnings for mortgage qualification. Instead, the bank or mortgage lender offering the program allows them to declare their income, often times with no additional verification.
The keys to being considered for this type of mortgage program is the ability to demonstration that you have been self employed for at least 3 years and can provide business registration and activity based documentation that supports your claim of being self employed.
Some programs may still want to see your annual notices of assessment from CRA for the last 3 years and may also require that you declare your income in front of a notary and provide a sworn affidavit to the bank to further support your application.
Another key criteria for mortgage approval that is consistent with all institutional mortgages is that the self employed applicant must have strong credit, typically at a credit score level of 650 or higher, depending on the bank.
The self employed mortgage programs will vary in terms of the amount of mortgage they are prepared to underwrite related to the value of the property. For refinancing scenarios, the borrower can potentially secure a mortgage of up to 60% of the value of the property and up to 65% for a purchase. These programs also tend to cap out at real estate property values of a million dollars.
There is a fair amount of variability among the programs in the market, so its best to employ the services of a mortgage broker to find one that best fits your needs and financing profile.
If you’re in need of a self employed mortgage or would like to better understand you potential options, please give me a call and we can review your situation and the different program requirements together.
Once again, these are not absolute guidelines by any means, but do provide the basic requirements one can expect from institutional lenders that consider self employed mortgage applications.
If you cannot meet the qualifications listed, there may still be mortgage programs that you can apply for, but they are likely going to be for higher rates.
If you are seeking a self employed mortgage program or just looking for more information, I suggest you give me a call so that we can go through your situation in detail and answer any questions you may have.