The Self Employed Mortgage

You’ve worked hard to get your business off the ground. It’s taken months or years but you’re finally enjoying a steady return. One of the many benefits of being self employed is that you have an opportunity to reduce the tax you pay because you can write off business expenses. Any accountant worth his (or her) weight will help you develop strategies to reduce the amount of income your report, to minimize the tax you pay.

Now you want to apply for a mortgage. The only problem is, the first thing the bank asks you for is your tax returns. “Show me the money” they say. And so it goes.

Self employed people are advised to seek out the services of a mortgage broker who will match your mortgage application with the right lending program. There are lenders out there that will either gross up the income you report by some margin if you are self employed, or waive the requirement to prove income altogether.

At Mortgage Alliance we have fifty six different lenders to choose from when matching your application to a lender. There are many lenders that you can only access through a mortgage broker, and since they don’t have a massive network of branches to support as the banks do, their rates are lower than the banks.

With as little as 10% down, a self employed applicant can obtain a mortgage without any proof of income. The application must be reasonable however. For example, if you are a self employed mechanic it is reasonable that you could afford to carry a $300,000 mortgage, but not an $800,000 mortgage. Your credit should also be excellent and the lender will also want to see that the down payment is coming from your own resources.

Canadian Government Throws Wet Blanket on Mortgage Market

On Wednesday this week the Department of Finance announced that some of the mortgage products created in the last two years including 40 year amortizations and zero down mortgages would be eliminated effective October 15, 2008. They also announced they would change some of the documentation requirements (I anticipate more strict requirements for self employed/no income qualifer mortgages) and institute a minimum beacon score requirement of 620 (they say would consider lower scores on an exception basis.

For more details on the changes check out my video below..



Tips on dealing with the changes:
If you're in the market and you want to purchase using one of the existing programs, make sure you get your mortgage application in by October 15th. If you were planning to buy a home and you think these changes will impact your ability to follow through with your plans, talk to your financial planner about the Home Buyers Plan which allows you to take funds out of an RRSP tax free after just 90 days as long as its for down payment purposes. Use your savings or look into getting an RRSP loan to get money into the RRSP. If your self employed, get your taxes filed so you can show your current with your taxes and if your credit score is on the low side, eliminate unnecessary loan inquiries and try and reduce your credit card balances. You can check your credit score by going to www.equifax.ca. There's no impact on your credit score when you check it yourself.