During the past two weeks further rule tightening came down from lenders on self employed borrowers. This is in addition to the constraints that were already placed upon self-employed borrowers over the last few years.
We have been telling self employed borrowers over the last few years that you must start declaring more “net” income if you want to qualify for the best mortgages rates. You can no longer get away with writing your income down as close to zero as possible and still get best mortgage rates. Lenders take an average of your net income (Line 150 from your tax return/notice of assessment) for the past two years in determining your income. If you choose to write this down as low as possible you are greatly reducing your chances of qualifying for a mortgage at “best” rates.
If you still aren’t declaring enough income to qualify for a mortgage there are still ways to qualify for a mortgage if you are self employed but it is harder. Here are some options for you.
– You are able to borrow up to 90% on purchases even if you don’t declare enough income. This is available under a “stated income” program. This is where we are able to declare an income for you that is somewhere between your net income and your gross income. However lenders are now required to look at your net income declared and will now be required to use a reduced “stated income”. In addition, under this program the high ratio insurance fees are double that of borrowers that qualify with their actual income.
– If you want to refinance your current existing home you are limited to 65% financing on a conventional mortgage without having to pay high ratio insurance fees while those who declare enough income to qualify can go up to 80% financing without paying insurance fees.
– If you need to finance 65% – 80% of your home value on a refinance and you need to use “stated income” you will end up paying an insurance fee plus possibly higher rates.
– If you don’t qualify under any of the above scenarios for best mortgage rates we still do have “B” lenders that lend at slightly higher rates in the 4 – 5% range and private lenders that start off at around 6 – 7%. These are a last resort for those that do not declare enough income.
As you can see if may come down to making a choice of declaring more income and paying more taxes to get a better mortgage rate or writing down your income as you normally have and possibly pay a higher rate and more interest on your mortgage.
If you want some advice on what you should be declaring for income in order to qualify for the mortgage you want please contact our office and we will be glad to help you.
For more information on our mortgage products please visit our website at www.ymscanada.ca.