The self-employed now comprise approximately 16% of Canada’s total workforce. While many like to imagine that these are the lucky folks who are living their entrepreneurial dreams, talk to self-employed Canadians about getting a mortgage and many will tell you that the dream can have downsides.
It is not uncommon to hear that despite actually being more financially successful than ever before, self-employed Canadian’s often find that they do not fit within the traditional mortgage lending guidelines set out by many of the banks. This can make mortgage shopping a frustrating and, for some, a humiliating experience.
Without an established stream of pay stubs from an employer, lenders have none of the traditional assurances that the self-employed applicant can meet the mortgage obligations. This has traditionally lead to self-employed applicants undergoing a long and complicated process to prove their ability to service the debt.
Most frustrating of all for small business owners has been the traditional request by lenders to provide detailed financial statements for their business.
But what picture do those statements paint for the lenders?
An astute business owner with a good accountant will work hard to minimize taxable income for the business. This seemingly smart financial management strategy backfires however when lenders plug those figures into their lending formulas – often concluding that these lower income figures makes the applicant a high-risk borrower.
The problem is not with the self-employed as a category, but rather with the lenders traditional criteria for defining income or specifically their inability to reflect the different income environment of a self-employed homebuyer.
Thankfully, the lending landscape is adapting to this market need with specially designed mortgage products for this increasingly attractive and growing market segment.
Naturally, the lender will still need to assess risk, but the traditional income verification criteria used in the past has been replaced with a tailor-made, common sense approach to defining income for the self-employed. Many self-employed mortgage products now allow applicants to qualify based solely on an applicant’s stated income, along with confirmation that their lending ratios, credit and tax liabilities are also in good order.
By redefining how self-employed income is reported and verified, many Canadian’s are now being rewarded instead of penalized for their entrepreneurial spirit and lifestyle...and with more and more lenders now offering self-employed Canadians new and innovative mortgage solutions, seeking the advice of a mortgage professional that can provide insight and experience in this niche mortgage market can be good for business.
Domenic Mirabelli
Mortgage Intelligence
416.303.4480
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