Self Employed Mortgages Guidelines
Being your own boss can be so liberating. You can work your own hours, call the shots on your work style and earn a good income. The one drawback of being self employed is that it is harder for you to prove your income for loan purposes, like when you want a mortgage on a house.
We have some tips we think you might find useful in case you have struggled and failed to get a mortgage on a home.
Tips for Self Employed Mortgages.
1. Plan Two Years in Advance
Any mortgage company you approach is expected to go into your books up to two years in your past to see your income history. So, if you want a home, consider getting one in two years and start planning towards it. For salaried individuals, it is easy enough for them to show proof of income by showing pay stubs and so forth.
Self employed individuals, on the other hand, need to show their credit history, the contracts they have had over the years, or any coming up and also have to show a statement of their accounts as prepared by a certified accountant. There’s a lot of paperwork involved in getting a mortgage for the self employed. With the right amount of planning, you can leave a proper paper trail for two years that will give the financing company all the assurance it needs to lend you the loan you require. Contact our mortgage brokers in Wasaga Beach to answer all your mortgage related questions.
2. Prepare to Pay A Larger Down Payment
With a salaried employee, mortgage companies are more likely to ask for a lower down payment of just 5% or 10%, but unfortunately this amount is a lot higher in the case of the self employed. Banks today only offer mortgage of 65% or less to self employed individuals.
While most mortgage companies may be wary to offer a loan to a self employed individual, they cannot turn down an offer where the individual offers to pay 25% or more of the home’s value as down payment. If you are serious about buying a home, consider putting some of your income aside so that you can pay a large down payment. Meet a mortgage agent and figure out what the golden number is so that you can start saving up for it.
3. Keep Your Documentation Intact
There is a lot more paperwork involved in getting a mortgage for a self employed person as compared to a salaried individual. You will need to have your tax filings from the previous two years available for the mortgage company to check. This may mean that you will have to show a higher income to be able to get your mortgage application approved. If you are writing off a higher amount of expenses so that you can save on your taxes, you could still qualify for a mortgage from an understanding lender, but this could come at a higher premium.
Take a look at your investment plan and see how much you would be able to shell out for premiums before you decide how to file your taxes for the next two years. Besides this, other documents you will need to show include GST invoicing, credit scores, financial statements, proof of your business ownership or a stated income document, any bank statement to show that the money you are placing as a down payment genuinely came from your business earnings.
4.Try Private Mortgage Financing
If everything else fails and the banks still won’t approve your application, you may want to consider private mortgage broker financing. While the interest rates are considerably higher with private mortgage financing, and there are lender fees that you will also have to pay annually, you will be able to get a loan easily that will last a couple of years.
This is a good option if you are actually able to pay back a loan with the income from your business, but are just unable to prove that to your financier because you may have a bad credit history. Whatever the reason, you can use the private mortgage financing option as a stop gap so that you can get your credit scores back up where they should be and go in for a full mortgage after you have paid back the private mortgage loan.
Getting a mortgage does not have to be impossible for the self employed. While the scales are unfairly tilted in the favor of people with employers, our Mortgage Broker Team is help to help every step of the way.