Thursday, May 23, 2013

Why it’s harder for the self-employed to get a mortgage

Here is a fantastic article from theStar.com that explains the ins and outs of getting a mortgage if you're self employed.

Alberta has a large number of entrepreneurs and, consequently, I get a fair amount of inquiries from self employed people trying to obtain a mortgage. Here are some tips to improve your odds of getting the mortgage you've applied for:

1. Be organized: You'll need to provide your full tax returns (T1 Generals) along with the corresponding Notice of Assessment for the last two years that detail your expenses and write offs  (called the Statement of Business Activities). I often talk to applicants who can't locate their tax returns or Notice of Assessment because they have been misplaced. This will delay your file unnecessarily. It's best to locate them before you apply for a mortgage.
2. Pay your taxes: It is important to not show any tax arrears. Not only will you not get the mortgage without bringing your taxes up-to-date, it just generally doesn't look very good to a lender when you owe money to Revenue Canada. If you do happen to have a balance owing, ensure that you have the funds to pay the amount owing in full as this will be a requirement of funding your mortgage. Better yet, pay the balance owing before you apply for the mortgage.
3. Down payment: I have had several inquiries from self employed people who do not have a down payment. If you are self employed you need a down payment. You'll need a MINIMUM of 5% down if you can prove your income via your tax returns for the last two years and a 10% MINIMUM down payment if you cannot prove your income.
4. Credit: If you are self employed and are buying a house with only 5 or 10% down you need to have good credit.
5. Length of time in business: Generally speaking, most lenders and mortgage insurers want to see that you have been in business for a minimum of 2 years to show you have a track record of steady earnings. If you just started a business a month ago, you probably will not be able to buy a home for a little while unless you have a much larger down payment (15% or more).
Buying a house and qualifying for a mortgage when you're in business for yourself requires a bit more patience and pre-planning than it does for the average home buyer but it is certainly not impossible. If you have any questions regarding obtaining a mortgage when you're self employed please contact me.

Wednesday, May 8, 2013

Loyalty and mortgage renewals don't mix!

When it comes to renewing your mortgage with your current financial institution, those loyal customers that simply sign on the dotted line often don't get the best deal according to a paper published by the Bank of Canada. A recent article in the star.com personal finance section states that "you’d think that loyalty would work in your favour — the more services you have with a bank, the better the deal. But, that’s not true".

The article goes on to say the "study also found that mortgage brokers find the best rates. Mortgage brokers are paid by the lender, not the customer, but aren’t confined to one lender’s products. Their business is very competitive, so the pressure to find the very best rates is high. The study noted that brokers “are a significant factor driving discounts,” reducing the cost of a mortgage on average by 17.5 basis points."

For me, this is nothing new; Mortgage Brokers do have excellent rates and help many consumers to negotiate a lower rate with their current lending institution.  I've seen this go on for years. It never fails: a customer calls me explaining that they are up for renewal at their current bank and then they proceed to read off the rates they've been offered. They are almost ALWAYS higher than what I can quote them. It's pretty amazing what happens next! The customer then contacts their bank and tells them they've spoken with a Mortgage Broker that has excellent mortgage rates. The bank then usually lowers their rate to accommodate the customer.
The problem with this is twofold. One, a loyal customer should not have to work that hard to get a competitive rate at their bank. Second, if customers continue to use Mortgage Brokers simply to negotiate a better rate at their bank the mortgage broker channel will become unsustainable. Why should you, the consumer, care about that?

If we become unsustainable and go out of business then consumers will go back to paying much higher mortgage rates at the banks due to decreased competition.

Mortgage brokers work very hard to provide consumers with competitive mortgage rates and independent choices.  So, the next time you're up for renewal and a Mortgage Broker offers you an excellent rate, give that broker your mortgage business instead of running back to your bank and rewarding their poor customer service with your loyalty!