These stated income mortgage programs have been a growth market for most mortgage lenders over the last decade as more and more people get on the path to self employment.
And up to this point, it hasn’t been all that difficult to get approved for financing at or near the best rates on the market, for similar terms and conditions that employed applicants get.
But that has now changed with the changes that have been seen among some of the major lenders in the market.
According to the lenders, the changes are all about managing their risk and to help curtain the impact on their portfolio as what some describe as sub prime lending, or close to sub prime lending.
The good news for the self employed is that there are still a number of options in the market, both with the main banks, secondary lenders, and credit unions. And the more you have to work with, the closer you can get to the better mortgage rates that are available in the market place.
For self employed individuals who are looking at putting the least amount down and have some challenges in supporting their annual cash flow, it could very well be that they are now going to be paying more for their mortgage financing.
This area of the market, with all the ongoing changes, and the variety of different product offerings, can benefit considerably from working with an experienced mortgage broker who can guide you through the ins and outs of what different lenders can potentially provide to you.
A good mortgage broker can also provide guidance as to you can strengthen your application so as to potentially get a better result from certain lenders. Mortgage brokers that work with the self employed maintain a strong working knowledge of the lending/funding criteria of market lenders and also maintain a strong sense of how flexible or inflexible any particular lender will be to a given situation or circumstance that may be hard to assess on your own.
If you are trying to secure a self employed mortgage, or stated income mortgage and want to make sure you are getting the best deal possible in the market at a given point in time, then we suggest that you give us a call so we can go through your requirements with you and provide mortgage financing options for your immediate consideration.
Mortgage lenders have recognized this need and now virtually all banks and institutional lenders have a self employed mortgage program that you can consider if you fall into this category.
While self employed home loans are more common and fairly easy to come by, there are some things you can do to make sure you’re getting the best deal out there.
First, where possible, try to avoid mortgage requirements above 80% loan to value. Insured mortgages for the self employed come with a higher insurance premium to cover higher perceived risk of loss to the lender. And if a maximum lending amount is required, the insurance premium, as a percentage of the loan only goes up.
Second, make sure that maintain your credit score at or above 750. While there is no magic number for credit across the board, higher credit ratings are going to represent a stronger case for better rates and terms than will lower rates.
Third, try to show as clear a path as possible in your financial statements to your personally available cash flow. While self employed mortgages do allow you declare your income with additional support, the easier income and cash flow are to provide, the stronger your case is going to be for the best available rates and terms.
To be clear, the above points are not requirements to getting a Toronto self employed mortgage for a residential home mortgage applicant, but are geared more towards to securing the best deal possible from these programs. As a self employed individual that does not receive a regular pay check from an employer, you’re going to fall under these programs. So it only makes sense to manage these variables, within reason, to get the best deal possible which is going to be money in your pocket over time.
If you’d like to consider your options for Toronto self employed mortgages now or in the future and want to come up with a plan to get the best deal out there at a given point in time, we suggest that you give us a call so we can go through your requirements and financial profile with you and provide recommendations for achieving your mortgage goals.
The rates and terms available to self employed mortgage applicant are really no different than for what you can secure as an employed individual.
The key difference is the manner in which the mortgage lender goes about assessing your income and cash flow for the purpose of servicing the mortgage once its authorized and disbursed.
If you are an employed person, the mortgage lender will quickly know who you work for to validate self employment, and they will know that as a requirement of your employment, your employer is remitting income taxes on your behalf.
With a self employed status, you are responsible for remitting your own taxes and your income reporting can be quite different than an employed person based on things you may be able to write off or deduct that they cannot.
With a self employed person, the first things a mortgage lender needs to do is:
Similar to an employed person, a self employed mortgage applicant can apply for an insured mortgage for mortgage amounts above 80% loan to value. The main difference between insured mortgages for employed versus self employed is that the insurance premium for a self employed insured mortgage is going to be higher than for an employed applicant mortgage.
As mentioned earlier, the main difference between a self employed and employed mortgage application is the manner in which the mortgage lender verifies or confirms that you produce enough income to cover the costs of the mortgage.
The first approach is through income qualifying which is similar to what an employed person would go through in that the applicant will qualify the income earned through some combination of financial statements and other third party reporting. The the case of an employed applicant, the primary third party qualifying documents are T4 slips, CRA notice of assessment, and a letter from the employer.
The second method of proving income is the stated income approach which is used in situations where there may not be enough direct third party income documentation to provide, but through other declarations such as assets owned and their related value, an applicant can prove to a mortgage lender that they have the means to service the mortgage.
Financing vehicles like a home equity loan or home equity line of credit are also possible to secure with a self employed status, alleviating the need for otherwise solid applicants to be pushed into higher cost private mortgage financing options.