If you’re self-employed, and have a fair amount of equity in your home, there is a loan product I would like to bring to your attention.
Self-employed borrowers, also known as “Business For Self, '' usually claim less than their gross income on their income taxes. BFS individuals use write-offs associated with business expenses to reduce their annual income, which usually results in paying fewer taxes.
With mortgage financing, however, the lower income claimed presents an issue with qualifying since major banks use the two year-average of net income to qualify or require a person to be incorporated to use the business income under specific Business For Self Programs usually tailored to professionals like doctors, lawyers and dentists.
Basically, this limitation on financing amounts to some self-employed borrowers not being able to qualify for mortgage financing with major lending institutions. And as a result, it often pushes BFS borrowers into alternative lending spaces, which results in higher interest rates and more fees.
As a mortgage professional, I always look at the programs and products available to service these types of mortgage borrowers since the name of the game is to save people the most money on their mortgage. So, if there is an opportunity to avoid paying higher interest and fees, I like to present these options to my clients as the best products available for their situation first.
In the last year, property prices have unexpectedly skyrocketed due to record-low interest rates and a shortage of housing, which has resulted in the equity programs being the most favoured for borrowers who need to renew, refinance and purchase homes.
Not everyone knows about equity programs and mortgage products in Canada so it’s best to consult with a mortgage broker who has direct access to the lenders offering them.
The “Equity 50” program is by far the best program being offered to self-employed individuals right now. To qualify under this program, a borrower must have at least 50% down. This means that a borrower has either a 50% down payment OR at least 50% in equity after the mortgage loan.
Unlike major banks and other conventional lenders, the “Equity 50” does not have any GDS or TDS requirements. GDS stands for Gross Debt Servicing and TDS stands for Total Debt Servicing. Lenders use these requirements to determine the amount of gross income that is already being spent on housing payments and unsecured debt payments on a monthly basis.
The “Equity 50” program can also use Canada Child Benefit to qualify along with Government and private pensions. The only true requirements are active business income, salaried income, hourly income and a credit score over 680 with at least 50% equity available after the mortgage loan.
Borrowers must be able to show they can pay the loan which should get reflected by at least two years of BFS income claimed on personal taxes (if they are self-employed) or a letter of employment with a recent pay stub if they are salaried or two years of T4s if they are hourly.
The "Equity 50" program offers a competitive fixed or variable rate and does not charge a lender or commitment fee.
What if you don’t have a 50% down payment?
If you don’t qualify under this program, then the next route would be to approach an alternative lender also known as a “B” lender. Alternative lenders offer different loan types, but the difference is they don’t need a minimum credit score. Alternative lenders can consider those borrowers with bruised credit who have at least a 20% down payment available whether through a down payment of personal savings OR available equity. Alternative lenders can also consider gross income either reported on personal taxes or reflected by recent bank statements.
If you would like to compare mortgage rates, please call or write today. We can help you find the best mortgage for your situation.
Sarah A. Colucci, Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929