In this day and age of outsourcing, downsizing, and right sizing, more and more people are becoming self employed, which has created a constantly growing market for Toronto self employed mortgage programs.
Lenders have in turn reacted to the increased market demand by creating self employed mortgage programs and offerings for different slices of the market.
The first area lenders look at is credit. Having good credit is a base requirement for most of the bank or institutional self employed residential mortgage programs. In fact, most of these programs will have a credit score minimum that must be met before you can be approved for financing.
Second, is verification that your personal income taxes are paid up to date with the Canada Revenue Agency. Regardless of what you’re going to be claiming for income on an annual basis, the mortgage lenders are going to want to verify, via your personal notice of assessment in most cases, that you do not have an outstanding balance owing to the government.
Third, the residential home lender is going to want to validate that you have been self employed for a certain period of time. This can be done in a number of ways including business registration documents, articles of incorporation, and so on.
Self employed mortgages can be insured through the insured mortgage programs in Canada up to 95% loan to value through some mortgage programs.
While the insured mortgage component does provide a higher loan to value opportunity to the applicant, it does come at a higher cost of borrowing as the insurance premium needs to be added into the base interest rate.
Interest rates themselves for self employed mortgages are comparable to employed mortgage programs with only slight differences in rates for most programs.
There are basically two types of self employed programs with respect to income verification… 1) income qualifying and 2) income declaration.
With income qualifying, you are basically utilizing your personal and business financial income to collectively demonstrate how much money you are making in the business as well as how much cash you’re drawing out to live on.
The mortgage lender will be interested in both the amount of money you actually declare to the government personally for income tax purposes as well as the earnings and drawings from the business that may or may not be reflected in your personal taxable income.
Income declaration is necessary in situations where the self employed individual cannot readily provide enough qualifying income, but still can provide the lender with proof of available assets and cash flow sufficient to meet the lenders requirements.
Most Toronto self employed mortgage programs are similar with respect to terms and conditions of the mortgage, but there are differences as it is a competitive market place for this type of residential mortgage financing.
For the higher ratio mortgage requests from self employed applicants, the mortgage lenders tend to tailor there programs to the requirements of the CMHC and the other mortgage insurance programs so the application process is more streamlined and more likely to be successful in situations where mortgage insurance is going to be required.
There are some twists and turns to getting qualified and approved for a self employed mortgage, especially when it comes to income verification or declaration. This is where an experienced mortgage broker can be extremely helpful not only guiding you through the process, but making sure you’re matched up with a self employed mortgage program that provides the best value to you.
If you’d like to get more information on self employed mortgages in the Greater Toronto Area, give us a call and set up a time to go through your requirements with a member of our mortgage team.