In this video we look at how to qualify for a mortgage if you're self-employed
and what are the financial requirements to qualify for a mortgage, that's
starting right now.
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below, hit the little notification bell so you don't miss anything. Today I'm
joined by Mujtaba Syed, manager mobile mortgage specialist with TD Canada Trust
and the question we're gonna answer today is how do you qualify for a
mortgage if you're self-employed?
Yeah that's a great question,
so most lenders are very similar when it comes to self-employed income or if you
are self-employed they want to see that you've been self-employed in the same
industry for at least three years and what they want to do is they want to see
somewhat of a consistency right so they're most likely going to use a two
year average of the income that you have reported from being self-employed and
and then there are some lenders they have ways where they could maybe gross
up that income understanding you're self-employed you have certain expenses
and then kind of see from there but there are other things as well that we
can do with self-employed, we can look at your financials we can take a look at
your taxes to see what you have kind of shown to pay a little bit less because
self-employed there is that benefit of being self-employed we can
control how much taxes you end up paying, but you definitely want to see what's
available. Now the insured-- there's an easier way to get approved to the
insured self where we have come to call a state income program through Genworth
where you can see if it's a little bit easier to try it that way, once again
it's a discussion to have with your lender and your specialist and
definitely interview your lender and your specialist to see if they're very
familiar when it comes up to self-employed policies because they
differ quite a bit and in if someone who's not very proficient in dealing
with self-employed people or self-employed borrowers they might not
know which policy to apply so once again ask them: Have you dealt with a lot of
self-employed? What do you-- how do you feel? Do you-- have you gotten
a lot of approvals for self-employed income? --and then kind of go
from there, but self-employed definitely there's-- just because you're
self-employed does not mean that the bank will not lend to you. They might ask
you for a little bit extra documentation to kind of see where your income is
coming from but at the end of the day if your lender is very proficient with
their policies with self-employed, they should be able to help you.
Well I know
you touched on financial requirements so maybe it isn't just for self-employed
but what are some of the financial requirements that you-- that need to
be met to qualify for mortgage?
Yeah great question Karl, so the financial requirements that
are needed by the lender is to see repay-ability right, when a
lender wants to lend you a mortgage they want to see that you can definitely
afford to pay that back. Banks are now in the business of lending money and trying
to recoup their assets or their homes, they want to make sure that you can pay
back what you borrowed and that's where the financial requirements come in for a
self-employed they want to see, well on paper how much are you showing on paper?
And on paper if you're not showing a significant amount maybe they can try to
find other ways to kind of prove your repay-ability for someone who's not
self-employed it's technically a lot easier because it's very cut and dry to
take a look at your income, if it's salary based they'll see how much salary
you're getting, they might take into account if you make any bonuses or if
you're getting some kind of share structure ownership or anything like
that. They might want to take all those into account and if you're not on
salary and you're working an hourly basis they might even want to see if
you're getting something like overtime, if you're working a lot to overtime, if
you have consistency over the overtime, they can take a look into that if you
work different shifts and you get shift differentials at a
higher rate of pay, they might want to take a look at that but for most banks
what they really like to do, like to see consistency they don't want to see
something over a two-year period to see does this make sense, is this consistent
with what we think and your bank is always trying to help you, definitely to
get it will qualify for mortgage until they're trying to look at a
lot of different options to see if you can qualify or not for sure so
definitely have a conversation with your lender when you're sitting down with
them, explain to them all the avenues that you think
you can make income like if you're working overtime bring that up if you
have shift differential, definitely bring that up if you're getting some
kind of allowance at work like a car allowance, or a phone allowance, or a
moving allowance, or etc. whatever it is, definitely bring that up so they can
actually see if they can actually add that to your income to help you qualify
for your mortgage.
Oh I didn't know that, that you could actually use your
overtime, your bonuses actually help you qualify. I thought it was just you know,
your set salary or your hourly wage.
Oh that's a great question, so a lot of
people unfortunately maybe don't realize that right, they do want to take a look
at it over time but you do want to take a look at it over the two years, like I
said they want to look at consistency so if you're consistently working over time
over a two-year time period they will take an average of the two years to see
does this make sense, same with bonuses if you're consistently
getting bonus over to your time period they want to take a look into that
because all time is an added benefit to you like you've worked hard for your over
time or you've worked hard to get a bonus, banks will definitely take a look
at that and actually use that towards your income qualifying capabilities.
And if you want to know more about how much you can get qualified for a mortgage, check
out our video above. I guess the last question I have is, does either for
self-employed or a salaried workers, how about low income or kind of bad credit,
how does that impact the ability to qualify?
Yeah another-- another great
question Karl, so low income unfortunately you're gonna have a harder
time with a repay-ability portion of what you're looking at borrowing so when
it comes down to having lower income there's just no other way around it right,
unfortunately you might want to look at maybe reducing your budget, maybe
find something that fits more into what you can qualify for so you can actually
have a comfortable payment. You can always look at getting a cosigner you
can look at doing these things but I always like to tell people is that
getting a cosigner might help you qualify for a higher mortgage but keep
in mind it's you at the end of the day that has to make that payment right so
if you're not comfortable making that payment and you feel like that budget is
just too much for you then maybe just kind of reduce it and then kind of see
in a couple years where you could move into something a little bit let's say,
smaller or cheaper and then you can actually build
up their savings and maybe you get a higher income in the future, you can
always upgrade later on right so don't ever, don't ever-- what we call just "money
pinch" to get into a home or become "mortgage poor", it's another term that we
like to talk about where most of your
budgeting is going towards your housing cost.
So, another thing that you brought up was poor credit. So poor credit
definitely impacts right so when it comes down to credit we kind of-- the
bank's look at that as character. We will look at to see if you have made a
promise to pay right, having a credit card is a promise to pay having a loan
or a line of credit is a promise to pay, same ways as a cell phone and if you're
late on your payments or you have a major payment you haven't really lived
up to your obligations or your promise so when banks are looking at lending
they aren't going to look at your credit to see do you keep your word, do
you-- are you on top of your payments because that could really impact if they
want to lend to you, maybe you won't stay on top of your payments so a lot of
great things but it doesn't mean that if you made a mistake in the past that it's
over, no banks will actually look into that if there is a certain scenario that
kind of makes sense and you explain to them it could be in a one-off situation,
they would a hundred percent consider that as well. Also if you have made some
mistakes in the past, now you worked hard and better at your credit or working to
better your credit, banks will also take a look at, they'll also give
you a second chance or a second review once your credit gets better so
it's just-- it's not-- the end of the day if you have some basics in the past it's
always trying to show the bank or the lender or the specialist that you are
working hard in making that right.
Last question in terms of self-employment though,
does it matter if you've set up a corporation or you've set it up your as
like, sort of your own business?
Yeah, good question. So there are definitely
benefits of both right, to see, but we would-- we would
definitely take a look at your employed "sole proprietor" as we call it
or being incorporated as what Karl had mentioned and then have different
requirements. It's very lengthy and detailed to go
into kind of right now but definitely if you're one of those two scenarios,
definitely speak to your lender and they can explain to advise you which policy
is best based on that for you, which
self-employed policy is gonna help you get qualified and definitely talking
about something we call add backs or business financials and stuff. Have that
conversation with them and they can advise you exactly which route to take
for the most easiest approval.
Perfect. The question I have for you is, are you
self-employed and if you are, did you run into any issues
regarding getting approved for a mortgage? Let us know in the comment
section below, and remember if you have-- if you want to watch any more of our
mortgage or mortgage rate videos, check it out in the description below. Thank
you very much for joining us and we'll catch you next time.
That's another edition of
Homebuyer's School. Tune in next time
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