24 Nov

Self Employed? 8 Tips to help you qualify for a mortgage

Self Employed

Posted by: Kiki Berg

Since 2012, It’s become the wild west of mortgage options out there for those folks who are living the Canadian dream of being Self Employed (also known as BFS, Business for Self).
In 2012, the Office of the Superintendent of Financial Institutions introduced Guideline B-20, which required federally regulated banks to tighten the rules for approving mortgages. Without boring you with what that mortgage jargon translates to you, but the bottom line means you “generally” have to qualify now from your Line 150 of your tax return. That’s NET income, not GROSS income.
Don’t freak out yet! There is good new below…

As BFS folks, one of the perks of being self employed is we don’t pay as much in taxes as we have business write offs we can use to lower our GROSS income. We are now being penalized with many lenders with higher rates and fees with these new rules.

I wish there was a simple book with straight up rules for the BFS mortgages, but there really isn’t.
Why?

  • It depends on your credit

  • It depends on where your income is coming from and how long. Is it commissioned, contract, invoiced, under the table or under your mattress?

  • It depends on your downpayment.

  • It depends on so many factors…hence you really need a mortgage consultant who really understands BFS mortgage programs.

There are a few programs you may fit under: Stated Income, BFS Conventional, or Alternative or Private lender. All of them are slightly different, but you will fit somewhere with someone!

Common Questions I get:

Q: I was working with a company as a computer systems analyst for the past 3 years. Now I am self employed as a computer systems analyst. Can I still qualify for a mortgage with less than 2 years as filed self employed?

A: Yes, as long as you are in the same Job role, you should have no issues

Q: I heard you need 20% down to qualify for Self Employed Mortgage.

A:  There are a few lenders that allow for 10% down now.

Q: I am a waitress and make most of my money in tips. How can I use this to qualify for a mortgage.

A: If you’re not declaring your tips on your taxes, then some lenders will look at 6 months deposits into you account.

Q: Can I refinance to pay off my Canada Revenue Debt I owe:

A: Yes, very common practice.

Kiki’s Korner of Self Employed mortgage tips:

  1. Keep your business money deposited in one account. Separate your expenses and your income accounts.

  2. Leases or Loans on vehicles for business should come out of your BUSINESS account.

  3. If your company is paying you a “stipend” or  “allowance” for you vehicle, make sure it’s taxable income. You will need two years to use this as income.

  4. Make sure your invoices match your deposits.

  5. When depositing “other monies” ie: tips, tag it on your deposit slip so it shows up online with your deposit.

  6. Keep important documents such as articles of incorporation, GST/HST registration or business licence in one folder with all your tax returns. Keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later, if you file a claim for credit or refund after you file your return. Keep records for 7 years if you file a claim for a loss from worthless securities or bad debt deduction. Be organized.

  7. If you’re not filing business financials, file T2’s if you are incorporated. Filing business financials may be more expensive, but worth it for mortgage qualifying with more lenders.

  8. If you pay yourself dividend income, you will need two years of this form of income.

If you’re in business for yourself, congratulations! Keep up the good work. There are many moving parts to planning and qualifying for a self employed mortgage, so if you’re just starting to look at the idea of a mortgage – plan NOW!

I too am self employed and work with many Professionals such as Lawyers, Doctors, Pharmacists, Management Consultants and self employed folks such as truck drivers and waitresses. You’re all important and have different incomes we can use to make your dream come true.

Happy Money Making!

23 Nov

Can’t qualify for a bank mortgage? How do private mortgage work?

Mortgage Tips

Posted by: Kiki Berg

There is almost ALWAYS a mortgage solution. New to Canada? Self Employed? Maybe a few credit glitches in your past? Not everyone can qualify for bank mortgages today. It’s doesn’t make you a bad person, it makes you a savvy person getting the best mortgage for your situation! With the mortgage rules constantly changing, private or alternative mortgages are becoming the only way many people can refinance or buy.

Did you know that according to the Globe and Mail report “self-employed now represent about 15.6 per cent of all working Canadians”

There is a misconception, that alternative or private mortgages are only for bad people. Some folks call it “subprime”. Don’t let the word “subprime” scare you as our lending practices here in Canada are very strict and all federally regulated.

What is Alternative or Private Mortgage Financing and who uses it? 

Private mortgage financing can be an excellent alternative for those that are either:

  1. Self Employed and declare little or no income

  2. Micro-condos that are less than 400sqft (banks generally won’t finance these)

  3. Foreign investors

  4. Non-residents of Canada

  5. Credit Challenged

  6. Owe CRA back taxes

  7. Property Taxes that are in arrears

  8. People going through a foreclosure

  9. Construction financing and commercials loans

  10. Equity takeouts for starting a business

  11. Short term financing that has is open and has no penalties

  12. Don’t want to refinance their 1st bank mortgage as the penalties are to high.

  13. Requiring funds up to $20 million dollars

Many Banks and mortgage brokers don’t specialize in private financing. It’s vital to ensure these types of mortgage files are are submitted and packaged different than a traditional bank type mortgage.

If it’s submitted without care and due diligence you may pay a higher rate and HEFTY fees!When you are applying for traditional mortgage (meaning your are a typical T4 employed client, good credit and saved down payment) the CLIENT is qualified based on the PERSON first, then the property.

When you apply for private financing, the PROPERTY is qualified for the mortgage first and then a few details about the client.The property and location, location, location is what the lender is lending on. A property in a marketable area such as Vancouver Westside, North Vancouver and West Vancouver are PRIME marketable properties that private lenders like. The risk is lower, so better rates they can offer. Certainly properties anywhere in Canada are all options for private financing, even in small communities as well. Mortgages are also available for remediated, non-remediated and legal grow op properties as well.
What about the Rates?
Valuable and marketable properties can get financing with 25% down, but you can expect to pay 2-3% higher rates than if you have less than 25% down, as their is more risk taken by the lender. The rates for a 1st mortgage today (2017) are as low as 5.75% for a strong mortgage file to 10% for a less desirable property. 2nd mortgages can range 12-15%. The bonus of course, it you can opt to only pay “interest only” and can be fully open so you don’t have to pay the penalty to break the mortgage.
I hear there are Fees?
There are almost always fees for private mortgages. This is how the broker is paid for working on your solution. Fees depend on your broker. I have seen as low as $500 to as high as 5% of the amount you’re borrowing; the average is 1% (for example: $400k mortgage would have a $4,000 fee), so good to ask this upfront and ask a few brokers that SPECIALIZE in private financing.
Having an EXIT strategy
If you get a short term (1-2 year) private financing, as your mortgage strategist, I want to ensure we have a “exit strategy” plan in place to have to moved to a traditional low rate mortgage soon. This is especially true if the reason for the private financing is credit, income or back taxes. We will work together to ensure this plan happens and is followed through.
22 Nov

Critical Documents Required for Mortgage Qualifying

Mortgage Tips

Posted by: Kiki Berg

Critical Documents Required for Mortgage Qualifying

Being fully pre-approved means that the lender has agreed to have you as a client (you have a pre-approval certificate) and the lender has reviewed, approved ALL your income and down payment documents (as listed below) prior to you going house hunting. Many bankers will say you're approved, you go out shopping and then they sorry you not approved due to some factor. Get a pre-approval in writing! It should have you amount, rate, term, payment and date it expires.

Excited! Of course you are, you are venturing into your 1st or possibly your next biggest loan application and investment of your life.​​

What documents are required to APPROVE your mortgage?

Being prepared with the RIGHT DOCUMENTS when you want to qualify your mortgage is HUGE; just like applying for a job or going for a job interview. Come prepared or don’t get hired (or in this case, declined).

I assist all my clients along the way to ensure any questions are asked and when you are my clients YOU are prepared UPFRONT and fully PRE-APPROVED before you go house hunting.

No stress, no running around, no surprises.

Why is this important?

You can have a leg up against the competition when buying your dream home as you can have very short timeline (ie: 1 day to confirm vs 5-7 days) for “financing subjects”.

Think?: you’re the seller and you know the buyer doesn’t have to run around finding financing and the deal may fall apart? This is the #1 reason deals DO fall apart. You will likely get the home over someone who isn’t fully approved and has to have financing subjects. Home is yours and no-ones time is wasted.

If you just walked into the bank, filled an application and gave little or no documents, and got a rate – you have a RATEHOLD. This is NOT a pre-approval. This guarantees nothing and you will be super stressed out when you put an offer in, have 5-7 days to remove financing subjects and you need to get any or all of the below documents. That’s not fun is it? Use a broker ALWAYS…me preferably. We don’t cost you anything!

When you get a full pre-approval, you as a person(s) are approved; ie: the bank done their work of reviewing (takes a few days) to call your employer, review your documents, etc. All we have to do is get the property approved, which takes a day or two. Much less stress, fastest approval…faster into you home!

Here is exactly the documents you need MUST have (there is NO negotiation on these) to get your mortgage approved with ease. Key word here is EASE. Banks/Lenders have to adhere to rules, audit files and if you don’t have any of these or haven’t been requested to supply them…a big FLAG that your mortgage approval might be in jeopardy and you will be running around like a crazy person 2 days before your financing subject removal.

Read carefully and note the details of each requirement to prevent you from pulling your hair out later.

Here is the list for the “average” T4 full-time working person with 5-15% as their down payment (there is more for self employed, and part-time noted below):

Are you a Full-time Employee?

  1. Letter of Employment from your employer, on company letterhead, that states: when you started, how much you make per hour or salary, how many guaranteed hours per week and if your new is there a probation. You can request this from your manager or HR department. This is very normal request that HR gets for mortgages.

  2. Last 2 paystubs: must show all tax deductions, name of company and have your name on it.

  3. Any other income? Child Support, Long Term Disability, EI, Foster Care, part-time income? Bring anything that supports it. NOTE: if you are divorced/separated and paying support, bring your finalized separation/divorce agreement. With some lenders, we can request a statutory declaration from lawyer.

  4. If you need a simple, cost effective, agreement drawn up to get this mortgage done, you can contact Kevin Moye, my good friend and divorce mediator at BC Mediation Services . Going to a lawyer isn’t usually necessary if you’re amicable with your ex-partner. Kevin: 604-818-5632. Using the cheap divorce kit from the library won’t work as it needs to be certified by independent legal representation.

  5. Notice of Assessment from Canada Revenue for the previous tax filed year. Can’t find it? you can request it from Rev Can to send it to you by mail (give 4-6 weeks for it though) or get it online from your CRA Account.

  6. T4’s for you previous year.

  7. 90 day history of bank statement showing the money you are using to put down on your purchase.
    Why 90 days? Unless you can prove you got the money either a sale of a house, car or other immediate forms of money (receipt required)…saved money takes time and the rules from the banks/government is 90 days. They just want to make sure you aren’t a drug dealer, borrowed the money and put it in your account or other fraud issues. OWN SOURCES = 90 days. BORROWED is fine, but must be disclosed. GIFT is when mom/dad give you money. Once you have an approval for “own sources” you can’t decide to change your mind and do gifted or borrowed. That’s a whole new approval.

Downpayments

Own Sources: For example for “own sources”: if you are a first time buyer and your money is in RRSP’s then, have your last quarterly statement for the RRSP money. If your money is in 3 different savings account, you need to print off 3 months history with the beginning balance and end balance as of current. The account statements MUST have your NAME ON IT or it could be anyone’s account. I see this all the time. If it doesn’t print out with your name, print the summary page of your accounts. This usually has your name on it, list of your accounts and balances. Just think, the bank needs to see YOU have X$ in your (not your mom’s or grandparents) account.

GIFT: If mom/dad/grandparents are giving you money…then the bank needs to know this as the mortgage is submitted differently (this is called a GIFT).

If you are PART-TIME employee?

All of the above, except you will need to bring 3 years of Notice of Assessments. You need to be working for 2 years in the same job to use part-time income. You can have your Full-time job and have another part-time gig…you can use that income too (as long as it’s been 2 years).

If you are Self Employed?

  1. 2 years of your T1 Generals with Statement of Business Activities

  2. Statement of Business Activities.

  3. 3 years of CRA Notice of Assessments

  4. if incorporated: your incorporation license, articles of incorporation

  5. 90 day history of bank statement showing the money you are using to put down on your purchase

Now let’s get started! Give me a call 778-808-7756 to start your mortgage plan, find out what you want from your mortgage, and get you moving along, having fun and being excited! There are so many options for you.

Going to the bank direct is such a big dis-service to you. That is like walking into Ford and asking for a Mercedes or Toyota. As a broker: I am FREE! I work with ALL the banks, know ALL the rules, get the bank you choose pays me to give you great service and a fantastic product. There are over 300 of them…so don’t sell yourself short.

Kiki

21 Nov

I’ve never heard of that lender before?

Mortgage Tips

Posted by: Kiki Berg

I’VE NEVER HEARD OF THAT LENDER BEFORE

One of the benefits of working with an independent mortgage professional; compared to getting your mortgage through a single institution, is choice. And as there are even more mortgage rules coming into place January 1st 2018, now more than ever, having access to a wide variety of mortgage products is going to ensure you get the mortgage that best suits your needs.

Working with an independent mortgage professional will give you access to varying products from many different lenders, some of these lender you may have never even heard of, but that’s okay. Sure, RBC, BMO, and CIBC, are more household names compared to say, MCAP, RMG, or Merix Financial, but as each lender has a different appetite for risk (there is always a risk when lending money) how do you know which lender is going to have the products that are going to be the best fit for you?

Typically the conversation develops into something like this: “I’ve never heard of this lender before, are they safe, I mean… I have no idea who they are”? And although that is a valid question, there is a simple answer. Yes. Yes they are safe. All the lenders we work with are reputable and governed by the same regulator as the big banks. Ultimately, you have their money, they don’t have yours!
But let’s answer a few of the common questions often asked about these lenders accessed only through an independent mortgage professional.

Why haven’t I heard of any of these lenders?
Instead of spending all their money on huge marketing campaigns (like the Canadian big banks) which drives up the cost of their product, broker channel lenders rely on competitive products and independent mortgage professionals to secure new clients.

What happens if my lender gets purchased by another lender?
This actually happens quite a bit, however, it’s business as usual for you. Even if your mortgage contract gets sold, the terms of your mortgage stay intact and nothing changes for you.

What happens if my lender goes bankrupt or is no longer lending at the end of my term?
This would be the same as if the lender was purchased by another lender. The only difference is, at the end of your term, we would have to find another lender to place your next term. And as this is already good practice, it’s business as usual. Again, you have their money, they don’t have yours. The contract would stay in force.

Why don’t these lenders have physical locations?
Much like why you haven’t heard of these lenders, they save the money on advertising and infrastructure, and instead focus on creating unique products to give their clients more choice. These lenders rely on independent mortgage professionals for awareness and compete on product not public awareness.

Do they really have better products?
Yes. Well, I guess we have to define what is meant by better products. If by better products you mean a variety of products that suit different individuals differently, then yes. Across the board, each lender has a different appetite for a different kind of risk. For example, while one lender might not include child tax income as part of your regular income, another might. While one lender might look favourably on a certain condo development, another might not. Each lender sees things a little differently. Knowing the products and preferences at each lender is what we do!

When it comes to mortgage qualification, some broker channel lenders are more flexible than others (or the banks) and offer different programs that cater to self-employed, people who are retired, own multiple properties, or rely on disability income. While as it relates to the features of the mortgage, different lenders offer many different features.

Some mortgages can be paid off at an accelerated pace with little to no penalty, some accommodate different payment structure, some products are set at lower rate, but sacrifice flexibility.

At the end of the day, the goal should be to qualify for a mortgage that has the features that suit your individual needs. Regardless of which lender that is. If you would like to talk about your financial situation, and see which lender best suits your needs, please don’t hesitate to contact a Dominion Lending Centres mortgage specialist.

 

 

Author:

Michael Hallett

MICHAEL HALLETT

Dominion Lending Centres – Accredited Mortgage Professional
Michael is part of DLC Producers West Financial based in Coquitlam, BC