Private mortgages – an ideal solution for the self-employed
Self-employment has so many advantages, like no boss looking over your shoulder and flexible work hours. But being self-employed can also be a problem, especially when it comes to applying for a mortgage.
Fortunately, private mortgages are there to meet the needs of the self-employed.
It’s not always easy to get a mortgage when you’re self‑employed
Unlike salaried workers, the self-employed often have difficulty obtaining mortgage financing.
This is mainly due to their annual income being more variable from year to year and less predictable than that of employees. In the eyes of traditional financial institutions, this inevitably represents a risk, and one they are not always prepared to take.
Mortgages for the self-employed: the rules are now stricter
Recently, the Canada Mortgage and Housing Corporation (CMHC) tightened its mortgage financing rules for the self-employed.
Since these changes, any self-employed person applying for a mortgage must now meet a minimum income threshold for the previous 2 years when their down payment is less than 20%.
The self-employed worker must also prove that they have been carrying out their activities/ work in the same field for at least 2 years, which obviously excludes a young entrepreneur who has just started a business, even if they are very successful.
In addition, financial institutions ask the self-employed worker to provide:
- financial statements for their business
- information regarding their GST and QST accounts and proof of full payment
- proof that they have paid their federal and provincial taxes and are up to date
- contracts attesting to projected revenues for the coming years
And that’s not all: financial institutions also require the self-employed to have a credit score of 620 or higher.
In such a context, how can a self-employed person ever hope to obtain a mortgage loan? This is where private mortgages come in.
The private mortgage for the self-employed
Private mortgage lenders offer a financing product called the private mortgage.
This financing solution gives the self-employed the opportunity to take out a first mortgage loan for up to 75% of the property’s market value.
Private lenders have the advantage of being less strict than banks, especially when it comes to credit rating. They can also be more flexible with respect to proof of income, sometimes not even requiring any income verification.
For the self-employed worker, a private mortgage loan is ideal when banks refuse their mortgage application. A private mortgage is also a great option when their employment income is considered insufficient by traditional banks.
Some private lenders even offer an online loan application form that only takes a few minutes to complete.
Quick and flexible, private mortgages allow the self-employed to take advantage of a temporary mortgage for 12 to 24 months, i.e. the time it takes to (re)build their financial health and transit to a traditional financial institution.
Private mortgages and the self-employed – a winning duo!
It’s not always easy to be self-employed, especially when it’s time to apply for a mortgage with a traditional financial institution.
If you are self-employed and plan to buy a house, we invite you to contact a private lender. They can give you the flexibility you need and help you achieve your real estate investment goals.