Is self-employment mortgage approval a difficult or nearly impossible task?
That depends… Most lenders want stable, long term employment with an outside company or business. Self-employment appears as an alternative to the norm, yet millions of Canadians are self-employed; many self-employed Canadians are quite wealthy and successful. Mortgage lenders know this, and the most important factor comes down to financial strength of the applicant.
The Canadian Association of Mortgage Professionals research shows mortgages are generally more difficult under recent rule changes that require more cash down. They also found a trend to shorter mortgage loans; the 30-35 year range has nearly disappeared. Higher down payments are needed, and this is difficult for many first time buyers.
As a result, many more young Canadians rent, and rental prices have soared in many Canadian cities. The Canadian Mortgage and Housing Corporation (CMHC) is Canada’s leader in promoting home ownership and affordable financing. Their insured mortgage loan guarantees reduced risk for lenders and make more monies available for home purchase. For successful self-employment mortgage approval, an applicant must show or “state” income and pay bills on time.
Private lenders are another source of mortgage loans for self-employed borrowers. They often rely on equity in the property and income statements or cash flow. Approvals depend upon favorable reviews.
Five Mistakes that Kill Your Chances of Self Employed Mortgage Approval
There are certain things that will interfere with a fair presentation of one’s mortgage -worthiness.
Here are five mistakes that can kill self-employment mortgage approval:
- Hidden Income Self-employed borrowers can sometimes receive payments in cash or in kind (such as trading services or goods instead of payment by check). This is fine if the income is reported for tax purposes. If not, then less income will show to the lenders. The amount of income indicates how much you can spend and borrow to buy a house.
- Inflating Income this is the opposite of hidden income: overstating earnings to improve mortgage approval. The records must be supported and pass review. Applicants would be well advised never to overstate income. It will most likely lead to a decline or worse, a mortgage that is beyond the borrower’s means to repay.
- Hidden Debts Bills must be deducted from income to give the lender a fair picture. The applicant may have to find ways to reduce expenses and pay off debts to qualify. Concealing debts is a poor choice, if discovered it will weigh heavily against approval.
- Avoiding Credit Cards and Loans Private lenders and mortgage insurance providers each wish to see a record of credit and prompt repayment. Many make the mistake of avoiding credit completely so that they can avoid bad credit. Non-use of credit fails to show that one pays bills on time.
- Fail to Save Recent trends in Canada have made it more important to have a good down payment. Mortgages are shorter and require greater down payments. Self-employed borrowers are sometimes required to have 10% or more for a down payment. Self-employment mortgage approval in not impossible, it can be considered the result of efforts made well before the application; how well we prepare to show financial strength. It is clear that successful self-employment mortgage approval will be a product of many things one can plan and develop.
These steps include a savings program, good records, wise use of credit, and accurate income and expense statements. As always if you have any questions I am here to help – Richard Quelle 416-879-5011