3 MORTGAGE TERMS YOU NEED TO KNOW

Prepayment, Portability and Assumability

Prepayments

One of the most common questions we get is about mortgage prepayments. The conditions vary from lender to lender but the nice thing about prepayments is that you can pay a little more every year if you want to pay off your mortage faster. A great way to do this is through prepayments.

They’re always something to ask your broker about because each lender is very different. You can always do an increase on your payments and that means that you pay a little bit more each week or each month when you make your mortgage payment. You can also make a lump sum payment. Perhaps you get a bonus every year or you get a lot of Christmas money. You can just throw that on your mortgage. It goes right on the principle so you’re not paying interest on those extra funds. Paying a big chunk at once also means that a higher percentage of future payments will also go towards the principle.

Portability

Portability means that if you sell your house and you want to take your current mortgage and move it to your new house you can. The one thing about portability that we always have to keep in mind is that we can’t decrease the mortgage amount but we can do a little bit of an increase often through a second mortgage or an increase we call a blend and extend. It just gives you the flexibility of moving the mortgage from one property to the next property. It also gives you the flexibility of being in control of where you mortgage is going and not having to break your mortgage every time you decide to move.

Moving a mortgage to a new property avoids things like discharge fees, the legal cost of registering a new mortgage and the possibly of a higher interest rate. It’s great to be able to keep that rate for the full term rather than having to break and pay those penalties half way through.

Assumability

Assuming a mortgage comes into play more often where there are family ties. Say your parents have a mortgage and you move into that house. Rather than you going out and getting a new mortgage and your parents having to pay those discharge fees, you have the ability to assume their existing mortgage at that current rate. All you have to do is apply and make sure you can actually afford the mortgage at what they’re paying. You have to be able to be approved on the remaining balance on the mortgage just like you would on any other mortgage. Just because your parents have an eight hundred thousand dollar mortgage doesn’t mean you’ll be able to take that over.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.

TRACY VALKO

Dominion Lending Centres – Accredited Mortgage Professional
Tracy is part of DLC Forest City Funding based in London, ON.

SPRING INTO ACTION: REFINANCE YOUR MORTGAGE WITH THE HELP OF A MORTGAGE BROKER

We sprung forward last earlier this month by changing our clocks one hour ahead. For some, their microwave and oven clocks are once again displaying the correct time since the last time we needed to adjust our clocks (in the Fall). Patience is a virtue – except for when it comes time to refinance a mortgage!

The Spring is a busy time for mortgage brokers across the country. We welcome this change in season knowing that we are in the best position to give families mortgages that make sense for them.

This is the time of year that banks begin to send out their mortgage renewal notices. Some people will simply sign the documentation sent over from their bank and take on a new mortgage at the rate the bank has suggested. However, this may not be the best rate for which you and your family can qualify.

What is a Mortgage Renewal?

A mortgage renewal is when the current terms of your mortgage come to an end and you sign on for a new mortgage term.

The time is now to spring into action, up to three months ahead of your mortgage renewal deadline. By shopping around for the best mortgage rate for your financial circumstances, you may save yourself thousands of dollars. To do that, you may want to consider working with a seasoned professional – your local mortgage broker.

The benefits of working with a mortgage broker to help find a mortgage solution that works best for you are three-fold.

A mortgage broker gives you a second opinion.
While your current mortgage lender claims to have your best interest at heart, getting a second opinion on your financial situation does not hurt. There may be new options and products available for you that your current lender is forgetting or unable to offer. A second opinion on your changed financials may be able to save you money or highlight some new options that may be better suited to your needs.

A mortgage broker does the work for you, at no cost.
Some people are still concerned that hiring a seasoned professional to look at your finances and find new mortgage rates will cost a lot of money. This is a myth! Mortgage brokers provide their services at no charge (yes, free!) and take a fee from the lending institution, not the client. So, let us look around for the best mortgage rates available to you on your behalf – all at no cost to you.

A mortgage broker does ONE credit check but can check MULTIPLE lenders without lowering your credit score.
One of the biggest advantages to having a mortgage broker shop around on your behalf is having them conduct one credit check and then using that information to shop around among several different lenders. If you wanted to shop around on your own, you would have to allow each institution to run a credit check and, as a result, lower your credit score. Working with a lender also means a lot less paperwork for you, too!

In short, a Dominion Lending Centres mortgage broker does the legwork on finding the best mortgage rate for you, at no cost and with only one credit check. Be sure to spring into action this Spring to and get a jump on your mortgage renewal process.

MAX OMAR

Dominion Lending Centres – Accredited Mortgage Professional
Max is part of DLC Capital Region based in Edmonton, AB.

HISTORY OF MORTGAGE CHANGES

The mortgage industry seems to be ever-changing. What was applicable one day seems to no longer apply to the next and at times, it can be confusing to navigate through what all of these changes mean–and how they impact you directly. As Mortgage Brokers, we firmly do believe that although the industry has gone through MANY changes over the years, each time our clients are able to overcome them by practicing the same sound advice–which we will reveal at the end! But first, a walk through of the mortgage changes over the past few years and how the industry has changed:

LOOKING BACK

Before 2008

During this time, lending and mortgages policies were much more lenient! There was 100% financing available, 40-year amortizations, cash back mortgages, 95% refinancing, 5% down payment required for rental properties, and qualifications for FIXED terms under 5 years and VARIABLE mortgages at discounted contract rate. There was also NO LIMIT for your GROSS DEBT SERVICING (GDS) if your credit was strong enough. Relaxed lending guidelines when debt servicing secured and unsecured lines of credits and heating costs for non-subject and subject properties.

July 2008

We saw the elimination of 100% financing, the decrease of amortizations from 40-35 years and the introduction of minimum required credit scores, which all took place during this time period. It was also the time in which the Total Debt Servicing (TDS) could only be maxed to 45%.

April 2010
This time period saw Variable Rate Mortgages having to be qualified at the 5-year Bank of Canada’s posted rate along with 1-4 year Fixed Term Mortgages qualified at the same. There was also the introduction of a minimum of 20% down vs. 5% on investment properties and an introduction of new guidelines on looking at rental income, property taxes and heat.

March 2011

The 35-year Amortization dropped to 30 years for conventional mortgages, refinancing dropped to 85% from 90% and the elimination of mortgage insurance on secured lines of credit.

July 2012

30-year amortizations dropped again to 25 years for High Ratio Mortgages (less than 20% down). Refinancing also dropped down this time to 80% from 85%. Tougher guidelines within stated income mortgage products making financing for the Business for Self more challenging and the disappearance of true equity lending. Perhaps the three biggest changes of this time were:

● Ban mortgage insurance on any million dollar homes
○ 20% min requirement for down payment
● Elimination of cash back mortgages
○ Federal guidelines Min; requirement of 5% down
● Introduction to FLEX DOWN mortgage products

February 2014

Increase in default insurance premiums.

Februrary 2016

Minimum down payment rules changed to:
● Up to $500,000 – 5%
● Up to $1 million – 5% for the first $500,000 and 10% up to $1 million
● $1 million and greater requires 20% down (no mortgage insurance available)

Exemption for BC Property Transfer Tax on NEW BUILDS regardless if one was a 1st time home buyer with a purchase price of $750,000 or less.

July 2016

Still fresh in our minds, the introduction of the foreign tax stating that an ADDITIONAL 15% Property Transfer Tax is applied for all non residents or corporations that are not incorporated in Canada purchasing property in British Columbia.

October 17, 2016: Stress testing

INSURED mortgages with less than 20% down Have to qualify at Bank of Canada 5 year posted rate.

November 30, 2016: Monoline Lenders

Portfolio Insured mortgages (monoline lenders) greater than 20% have new conditions with regulations requiring qualification at the Bank of Canada 5 year posted rate, maximum amortization of 25 years, max purchase price of $1 million and must be owner-occupied.

AND HERE WE ARE NOW…

January 2018: OSFI ANNOUNCES STRESS TESTING FOR ALL MORTGAGES + NO MORE BUNDLING AND MORE RESTRICTIONS

•If your mortgage is uninsured (greater than 20% down payment) you will now need to qualify at the greater of the five-year benchmark rate published by the Bank of Canada or the contractual mortgage rate +2%

•Lenders will be required to enhance their LTV (loan to value) limits so that they will be responsive to risk. This means LTV’s will need to change as the housing market and economic environment change.

•Restrictions will be placed on lending arrangements that are designed to circumvent LTV limits. This means bundled mortgages will no longer be permitted.

*A bundled mortgage is when you have a primary mortgage and pair it with a second loan from an alternative lender. It is typically done when the borrower is unable to have the required down payment to meet a specific LTV.

BOTTOM LINE: WHERE DO WE GO FROM HERE?

As you can see, the industry has always been one that has changed, shifted and altered based on the economy and what is currently going on in Canada. However, with the new changes that have come into effect this year, we recognize that many are concerned about the financial implications the 2018 changes may have.

The one piece of advice that we promised you at the start of this blog, and one that has helped all our clients get through these changes is this: work with a Dominion Lending Centres mortgage broker!

We cannot emphasis the importance of this enough. We have up to date, industry knowledge, access to all of the top lenders and we are free to use! We guarantee to not only get you the sharpest rate, but also the right product for your mortgage.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

REFINANCING IN 2018

Recently there were changes to the mortgage rules yet again, and one of the rule changes was regarding refinancing your home. At one point in the last 10 years you could refinance your home all the way back up to 95% of its current value, which in many cases has put that property what we call under water or upside down. Basically, real estate markets ebb and flow and if you refinanced to 95% when we were at the crest of a market wave then as markets rolled back you were underwater… clever huh.

Fast forward a few years and the government said ‘what a minute, that is dangerous’, and it was. Clients now had no options for that property except to keep it, hoping values came back or turn it into a rental and hope to break even. At this point the government now said you can only refinance your home to 80% of the value which of course meant you needed to have equity in the property of at least 20% to make a change. This was an insurable product for many of our monoline lenders at this point, so it was something that was competitive in the market.

Welcome to 2018 and today you can still refinance your home to 80% but the Office of the Superintendents of Financial Institutions (OSFI) and CMHC now say that as a lender you can no longer insure this product. What does that mean for the average consumer? First off, it means that lenders across the board are not offering the same rate for insured mortgages as they are for refinances. The point spread between insured and uninsured mortgages has grown to, on average, .30% higher for 5-year fixed rates and it is .55% higher for variable rates.

To add to this extra cost, the new rules of qualifying at 5.14% which is currently the benchmark rate, applies to all mortgages including refinancing. Overall, the changes make it tougher to refinance and forces Canadians to seek alternative options to take equity out of their homes. In many cases this will mean looking to the private sector at higher rates when they need that money. If you have any questions about refinancing, contact your local Dominion Lending Centres mortgage professional.

LEN LANE

Dominion Lending Centres – Mortgage Professional
Len is the owner and founder f DLC Brokers For Life based in Edmonton, AB.

WHERE ARE CANADIAN MORTGAGE RATES GOING IN 2018?

2017 was a year of change for the Canadian Mortgage Market. With the announcement of the B-20 guideline changes requiring all insured or uninsured mortgages to undergo stress testing. In addition, the removal of mortgage bundling and the continued rate rises from the Bank of Canada have led to significant changes in mortgage rates.

This raises the question: what does 2018 hold? While we cannot be 100% certain, based on predictions and summarizing stats from various corporations, we are able to put together a strong prediction of what 2018 will hold.

The Real Estate Market

As a whole, the Canadian real estate market is expected to see a 5.3% drop in national sales due in large part to the new OSFI guidelines (CREA). With this, there is an expectation of minimal growth for home prices at just 1.9% vs. the 8.5% gain seen in 2017. This is due again to the heightened stress testing procedures.

In addition, the sales of condos and townhomes are expected to increase with new developments of multifamily complexes reaching an all-time high, and the demand for smaller, more affordable houses increasing.

So, what does that mean for home prices? CMHC predicts that the average home price is to increase from a range of $493,900-$511,300 in 2017 to a range of $499,400-$524,500 by 2019.

Essentially, the market is going through a period of increased demand for condos and townhomes, leading to potential price increases. In relation to the detached home market, there will be slight price increases, but nothing compared to the growth that was seen in 2016-2017. There is an ongoing trend for homebuyers based in Vancouver and the Fraser Valley to contentedly sit by the sidelines as they save up for a larger down payment before purchasing-further increasing condo ownership and driving demand for rental properties as well.

The Economy

The Canadian Economy has been growing and surging forward through most of 2017. In the four quarters from the second half of 2016 to the first half of 2017, the Canadian Economy grew on average each quarter by 3.6%. Further, despite a slight slowdown in the second half of 2017, there was a rise in employment Canada wide, posting the annual real GDP growth over 3% in 2017. It was a substantial year for the Canadian economy in 2017 and this growth was directly seen in the real estate and housing market.

As many are aware, to stabilize the economy and ensure balance remains, the Bank of Canada began raising interest rates in 2017 and has plans to continue to do so in 2018. This rise in interest rates serves to steadily and slowly stunt the growth of the economy in Canada. Coupled with the ongoing trade disputes, the Canadian economy is forecasted to slow overall, but will still post an above-trend 2.2% of growth in 2018.

The Mortgage Market

So, what does all of the above mean for the mortgage industry and its rates? Well, with the predicted increase in rates from the Bank of Canada it is safe to say that the mortgage rates will follow.

CMHC summarized that the expected interest rate increase over the near-term horizon will bump the posted 5-year mortgage rate to lie within 4.9% and 5.7% in 2018. For 2019 that number increases to 5.2%-6.2% range*

In layman’s terms, the rates are likely to continue to rise alongside the Bank of Canada’s increases. It is important to keep in mind that with planning and budgeting these rates can easily be taken on by the average consumer. A key thing to keep in mind is that a 0.25% rate increase works out to only $13.00/100k increase in your payment. Another fact is that every lender is different in how they will calculate this change. Your mortgage product is unique and may be affected differently than another.

Since the new changes have rolled out there has been a slight decline in consumer demand. As the changes continue to take effect and the potential for more rate increases continues, it becomes more apparent we will continue to see a shift in the mortgage and real estate market.

However, by choosing to work with a Dominion Lending Centres mortgage broker you are guaranteed to work with someone who has an in-depth understanding of both the changes and the market. They will work alongside you to find the best possible solution to get you the sharpest rate.

GEOFF LEE

Dominion Lending Centres – Accredited Mortgage Professional
Geoff is part of DLC GLM Mortgage Group based in Vancouver, BC.

TIME FOR A MORTGAGE RENEWAL

Is your mortgage coming up for renewal this year?

There is a good chance that you or someone know has a mortgage coming due. Some 47% of Canadians, almost one out of every two households, that currently have financing in place will mature within the next 12 months with a major lender in Canada.

Here are a couple simple rules to follow if you, a friend, a family member or colleague are renewing your mortgage this year.

• DO NOT just simply sign the renewal letter that comes in the mail.
• INVESTIGATE your options.

70% of all mortgagors simply sign the renewal letter that comes in the mail. You would think that because you have been with the current lender for so long that you would receive the BEST rate out there. NEWS FLASH, that is 100% false. Remember, lenders are in business of making money for their shareholders. Your current lender has done their homework, you should do yours. They know that most of the borrowers will sign and send back the form for ease and convenience. We are lazy by nature and we possess too much trust. As finance consumers, there are scenarios I’ve seen where we are leaving 20-40 (0.20% – 0.40%) basis points on the table.

I recently read an article online that indicated the average mortgage amount in the Metro Vancouver area was $438,716 for 2016. Let’s round that amount to $450,000 for ease of calculation. For every 0.25% difference the mortgage payment increases (or decreases) $13 per every $100,000 extended. If your current lender offered you a rate 0.25% higher than another lender then this scenario would yield an annual increase of $936. Are you able to invest 4-5 hours of your time to save that kind of money? Heck ya you can! That is $187.20 – $234 per hour.

Renewing with your existing lender may or may not be your only option. When 47% of you out there receive the renewal letter in the mail this year, I have 936 reasons why I would strongly advise you to reach out to a Dominion Lending Centres mortgage specialist to discuss ALL your options – switching lenders to save money and/or leveraging equity for financial planning purposes.
Here is an example of how I just re-financed my home to access my equity. We were able to obtain a HELOC (Home Equity Line of Credit) mortgage product from a major Canadian charter bank.

• Current residence appraised at $1.15MM.
• Current mortgage balance, $445,000.
• Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
• Opted to secure the current balance into a variable rate mortgage
• The equity of $475,000 was set-up access from a line of credit
• These clients now have access to funds for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.

But while a HELOC allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. A HELOC is also not available to all homeowners as there must be greater than 20% equity in the home before a lender will consider it.

With 13 modifications to the lending policies since 2006 the time to plan is now. If I were to attempt the same re-financing maneuver today to leverage equity I would qualify for 20% less ($95,000) or $380,000. This would be one less rental property added to the portfolio. Before anymore changes happen, you should consider accessing your money today.

MICHAEL HALLETT

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

TIPS FOR YOUR VARIABLE RATE MORTGAGE THAT COULD SAVE YOU THOUSANDS

With changes to mortgage rules and interest rates on the rise here are some tips for your variable rate mortgage that could save you thousands.

Since 2009 the prime lending rate has shifted from a high of 6% down to 2% range remaining fairly level for the past few years before rising to a present day level of 3.45%. During that time, lenders have offered consumers high discount variable mortgage as low as 1.2% when rates were at their lowest, to current rates of 2.45 (depending on the lender and if the mortgage is insured or not).

Historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

I always recommend if my clients can qualify and it makes sense for their specific situation to choose variable only if they will take full advantage of the lower rate. By setting their payment to the equivalent of the 5 year fixed rate at the time, the difference in payment goes directly to principal pay down.

Every 10% increase in payment shaves three years off the amortization of a five-year term so every bit extra matters and can make a difference.

If your mortgage is maturing in the next 90-180 days, it is time to talk to your Dominion Lending Centres mortgage professional for tips for your variable rate mortgage that could save you thousands.

You may feel the pressure to lock in to a fixed rate after the recent increases in the prime lending rate. For some this may be an option. However, I have the same advice every time someone asks me this question: It depends on your situation and we need to do a review. Take the extra time to review the current rate, remaining term of the mortgage, the new offer, how that will impact payments and your plans for staying in your home, moving and/or if this is an investment property.

For example Amy and Jake have a current balance of $300,000 on their mortgage with a variable rate at Prime minus .80% (2.65%). Current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering to lock in for a new five-year term offered at 3.34%. New payments would be $739. They love their condo but not sure if they will stay or move in two years or not.

After a review of their mortgage we offer a second option. Keep the remaining variable rate mortgage in place for the remaining two years. Set payments at 3.34% or $739 bi-weekly.

They decide on this second option because:

• In 24 months the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate
• They won’t be locked into a mortgage for another five years
• If they choose to sell before the maturity date, the penalty on a variable mortgage is only three months interest
• In two years they can either choose to stay with the same lender or move to another lender without penalty

With this strategy they don’t have to feel pressured into locking in today and they can continue to take advantage of the lower variable rate.

So if you are in a variable rate mortgage and not sure what to do. Remember my tips for your variable rate mortgage that could save you thousands.

PAULINE TONKIN

Dominion Lending Centres – Accredited Mortgage Professional
Pauline is part of DLC Innovative Mortgage Solutions based in Coquitlam, BC

4 SIGNS YOU’RE READY FOR HOMEOWNERSHIP

While most people know the main things they need to buy a home, such as stable employment and enough money for a down payment, there are a few other factors that may help you realize you’re ready, perhaps even earlier than you thought!

As a mortgage broker, it is my job to ensure that each one of my clients is getting the best service I can provide. Part of this means educating as much as possible when it comes to buying a home, which is why I’ve put together a list of 4 signs that may tell you that you are ready to become a homeowner.

You should have more funds available than the minimum of a down payment
This one may seem obvious, but it’s something that people may not realize until they actually think about it. It’s very difficult to afford a home if you only have enough money for a down payment and then find yourself scrambling for day-to-day living after that.

If you have enough money saved up (more than the minimum needed for a down payment), you may be ready to start house-hunting.

Your credit score is good
This might seem obvious at first glance, however, if you don’t have a good credit score, chances increase that you could be declined altogether or stuck with a higher interest rate and thus end up paying higher mortgage payments. If you have a less-than-optimal credit score, working with a mortgage professional can help you get on the right track in the shortest time possible. Sometimes a few subtle changes can bump a credit score from “meh” to “yahoo” in a few short months.

Breaking the bank isn’t in your future plans
Do you plan on buying two new vehicles in the next two years? Are you thinking of starting a family? Are you considering going back to school?

Although you may think you can afford to purchase a home right now, it’s extremely important to think about one, two, and five years down the road. If you know that you aren’t planning on incurring big expenses that you need to factor into your budget anytime soon, then that’s something that may help you decide to buy a home.

You are disciplined
It’s easy to say, “it’s a home, I’m going to have it for a long time so I may as well go all-in!”. While that would be nice, that’s rarely the case!

You must have a limit that you’re willing to spend. Sitting down with a mortgage broker or real estate agent and analyzing your finances is crucial. It’s important that you know costs associated with buying a home and what the maximum amount is that you can afford without experiencing financial struggles. IMPORTANT: This is not the amount that you are told is your max!

This is the amount that you calculate as your max based on your current monthly budget and savings plan. It’s quite frequent where I have clients tell me that their max budget is, say, $1200 and then when I run the numbers they could actually be approved for much more. Low and behold suddenly these guys are looking at homes that are hundreds of dollars a month higher than their initial perceived budget. It is up to you (with my help or pleading, when necessary) to reel things back in and make sure that you aren’t getting into something that affects the long-term livelihood of a well thought out budget or savings plan.

Conclusion

These are just four signs that you may be ready to purchase a home. If you’re seriously considering buying or selling, talking with a Dominion Lending Centres mortgage broker, such as myself, can help put you on the right path to a successful real estate transaction.

RRSP – USE HOME BUYERS’ PLAN (HBP) MORE THAN ONCE

Under the home buyers’ plan, a participant and his or her spouse or common- law partner is allowed to withdraw up to $25,000 from his or her RRSP to buy a home. Before 1999, only the first- time home buyers are permitted to buy a home under this plan. Now a person can take an advantage of HBP plan more than one, two, three, four or more times as long as the participant in this plan fulfills all other conditions. The house can be existing or can be built.

Are you a first – time home buyer?
You are considered a first-time home buyer if, in the four year period, you did not occupy a home that you or your current spouse or common-law partner owned. The four-year period begins on January 1st of the fourth year before the year you withdraw funds and ends 31 days before the date you withdraw the funds.
For example, if you withdraw funds on March 31, 2018, the four-year period begins on January 1, 2014 and ends on February 28, 2018.
If you have previously participated in the HBP, you may be able to do so again if your repayable HBP balance on January 1st of the year of the withdrawal is zero and you meet all the other HBP eligibility conditions.
Qualifying home – a qualifying home is a housing unit located in Canada. This includes existing homes and those being constructed. Single-family homes, semi-detached homes, townhouses, mobile homes, condominium units, and apartments in duplexes, triplexes, fourplexes, or apartment buildings all qualify. A share in a co-operative housing corporation that entitles you to possess, and gives you an equity interest in a housing unit located in Canada, also qualifies.

Repayment of withdrawal amount into RRSP
Generally, you have up to 15 years to repay to your RRSP, the amounts you withdrew from your RRSP(s) under the HBP. However, you can repay the full amount into your RRSP(s)
Each year, the Canada Revenue Agency (CRA) will send you a Home Buyers’ Plan (HBP) statement of account, with your notice of assessment or notice of reassessment.
The statement will include:
• the amount you have repaid so far (including any additional payments and amounts you included on your income tax and benefit return because they were not repaid);
• your remaining HBP balance; and
• the amount you have to contribute to your RRSP and designate as a repayment for the following year.

If you have any questions contact a Dominion Lending Centres Mortgage Professional near you.

Why, why, why it is so challenging for entrepreneurs to obtain a mortgage in Canada?
If you’re among the 2.7 million Canadians who are self-employed, regrettably your income is not as easy to document as someone who’s traditionally employed.

Since 2008, mortgage regulations in Canada have made it more challenging for those who work for themselves to qualify for a mortgage due to tighter restrictions on “stated income” loans. In 2012, Canada’s Office of the Superintendent of Financial Institutions (OSFI) introduced Guideline B-20, which requires federally regulated banks to evaluate applications for residential mortgages and home equity lines of credit with more scrutiny. These rulings made it more challenging for the self-employed to prove income.

Here’s what Self-Employed home buyers need to know:

1. Most self-employed are motivated to decrease their earnings to avoid paying tax through legitimate expenses and personal deductions.
-Therefore, much of one’s self-employed income does not show up on paper.

2. I’m sorry… but you can’t have your cake and eat it too! If you choose to write off as much of your income as legally possible to avoid paying taxes, claiming low take-home pay, you will end up paying a higher interest rate on your mortgage.
– i.e. home buyer is a tradesperson, they earn $70,000/year and legitimately write off their business expenses to $40,000/year on Line 150 of their tax return. Lenders use income from Line 150… not gross income to determine affordability.
– Some lenders allow you to “gross up” your declared taxable income (as opposed to stated income) by adding up to 15%.
– i.e. if your declared income on your Notice of Assessment (NOA) is $40,000, the lender could add 15% for a total of $46,000. In most cases this doesn’t really help the business owner, as their income is still too low to qualify for the mortgage they want.

3. The new mortgage rules mean the assessment of a self-employed applicant’s income has become far more rigorous. Lenders now analyze the average income for the industry a self-employed candidate works in, and study the person’s employment history and earnings in the field. Their stated income should be reasonable, based on:
– industry sector
– type of business
– length of time the operation has been in business

4. Work with professionals. You need to hire a qualified book keeper and a Chartered Professional Accountant (CPA). Their job is to know the ins and outs of taxes so that you can put your focus on growing your business.
– You need to keep all your financial affairs up to date. That means getting the accountant prepared financials, filing your annual tax returns and most importantly paying your taxes. Government always gets first dibs on any money. Lenders won’t be interested in you haven’t paid your taxes.
– I recommend having a discussion with your CPA. Let them know that you want to buy a home. Come up with a budget of what income you need to be able to prove on your tax returns.

Suggestion: you could choose to pay more personal income tax this year, to push your line 150 income up and help you qualify for any mortgage transactions you hope to make. Please note: most lenders will want to see 2 years history, to prove consistency in earnings.

5. For self-employed borrowers, being able to document income for the past 2-3 years gives you more lending options. Some of the documents your lender may request include:
– Credit bureau (within 30 days of purchase)
– Personal tax Notice of Assessment (NOA) for the previous two to three years.
– Proof that you have paid HST and/or GST in full.
– Financial statements for your business prepared by a Chartered Professional Accountant (CPA).
– Contracts showing your expected revenue for the coming years (if applicable).
– Copies of your Article of Incorporation (if applicable).
– Proof that you are a principal owner in the business.
– Business or GST license or Article of Incorporation

6. If you have less than 20% down payment, Genworth is the only option of the 3 mortgage default insurers that still has a stated income program.

Self-employed home buyers, who can document proof of income, can generally access the same mortgage products and rates as traditional borrowers.

Tips for self-employed applying for a mortgage to ensure the process goes smoothly:

1. Get your finances in order. Pay down your debt!!
– Every $400/month in loan payments lowers your mortgage eligibility by $100,000
– Every $12,000 in credit card debt lowers your mortgage eligibility by $100,000
– Do you see a theme here? Pay down your debt! Resist buying/leasing a new vehicle or taking on any additional debt prior to buying your home

2. 3 “Rules of Lending” what Banks look at when you apply for a Mortgage in Canada
– Debt-service ratios are a major factor in a loan-approval assessment based on your provable income (Line 150 – what you paid taxes on)
– Maintain good credit. Solving the Puzzle – 5 factors used in determining your Credit Score
– Consider a larger down-payment.
– If you run into difficulty qualifying on your own, consider having someone co-sign for your mortgage. Would a Co-Signer Enable You to Qualify for a Mortgage?

3. Have two to three years’ worth of your self-employed supporting documentation available so your mortgage broker can work with you to set up your Mortgage Preapproval.

4. Be consistent and show stability. Lenders prefer self-employed borrowers who work in a business that’s established and have expertise in that field.

What happens if the banks still don’t want you for a conventional mortgage?

Many high net worth business owners with low stated incomes turn to private mortgage lenders for financing, since they can’t prove their income.
It is difficult to navigate which lenders specialize in self-employed mortgages. Using a mortgage broker has obvious advantages, since mortgage brokers have access to multiple lenders and have a broad knowledge of the mortgage market.

If you have any questions, contact a Dominion Lending Centres mortgage specialist for help.