If you are one of the more than 7 million Canadians who are either self employed or are paid on a 100% commission basis, then you may be wondering what mortgage options are available to you.
At one point in time, the CMHC and other mortgage insurers offered programmes that allowed the self employed to purchase a home with as little as 5% down, and prove income using alternative methods, as long as the credit score was reasonable. Unfortunately in late 2009, these programmes were cancelled, which leaves the self employed with 2 options:
1. Prove income using T4 and T1 General tax forms.
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In this case, you will receive the lowest market rate from almost any major lender.
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Your stated income from tax forms will be averaged over the last 2 years to determine your income going into the home purchase or mortgage refinance.
- There are a few things that can be done in order to show more income to banks if many tax write-offs are present.
2. Use alternative forms of proving income (with less or no reliance on tax forms)
- If 'low document' or alternative means of demonstrating income is the type of mortgage you wish to pursue, you will need at least 20% equity available in the home, or to put into the home.
- Rates will vary for low document mortgages from the lowest in the market to about 1.5% above the lowest market rates. There are several variables, including amount of down payment and credit, that will determine your rate.
- As long as you have 20%, and you can show some proof of business activities/ revenues, then you can get into a good mortgage at a very competitive rate - even if credit is not perfect.
- Mortgage refinancing and debt consolidation can still make good sense with low doc mortgages, even if the rate is not the absolute lowest in the market.
So although the mortgage market for the self employed wasn't what it once was given the removal of CMHC assistance, there is still plenty of opportunity for those that work for them selves to get into solid, low rate mortgages.
I am always more than happy to work with clients to help find their best possible solution on the market. Contact me, visit my site, or feel free to leave a post with a question or remark.
Brent Richardson
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