Whether you are a first-time home buyer or someone with an existing home looking for a new place to move in, getting pre-approval and approval for mortgage loans is a tricky and challenging business. Lenders will scrutinize everything – from your income tax returns to your annual salary. The process becomes lengthier and even more bureaucratic if you transact directly with a bank.
Imagine how much more difficult the process is for self-employed people, freelancers and contractors, which takes up about 20% of the population of income earners in Canada. In Calgary, while people working for themselves, most likely in the comforts of their own homes enjoy many of the perks of not having a boss breathing down their neck, there are major downsides such as difficulty being approved for mortgage loans.
Most freelancers and self-employed individuals in Calgary have the misconception that it is impossible for them to get approved for a mortgage loan. But although the road to this is often rougher than getting traditional mortgage loans, it is definitely not impossible to cross. There are mortgage lenders with unconventional terms more than willing to transact with borrowers that are in the self-employed and freelancing niche.
Here are some tips that can help self-employed individuals out there finally get the financing needed to purchase their dream house:
1. Find a good broker in Calgary who has the experience and the connections in helping freelancers or self-employed workers.
It will be harder to get a loan if you transact directly with a bank because the processes for approval are typically inflexible. There are documents required that you most likely won’t be able to come up with such as tax returns and pay slips. Banks are usually stricter when it comes to the requirements so your chances of getting approved might be slimmer.
What is great about hiring a mortgage broker or a “middle man” to help you out is that the broker is associated with various lenders. The broker can help you find lenders with flexible terms and more forgiving requirements. Brokers also have a special relationship with exclusive lenders or lenders that do not openly advertise their services but only offer them to specific brokers. With more borrowing options at your disposal, there is a bigger chance of finding a lender with good mortgage terms.
Your broker can also negotiate on your behalf about the credentials and requirements you can pass. If you are unable to produce some documents, your broker can help you talk to the lender about it and might even help you substitute those documents with what you currently have.
Mortgage brokers actually make your work easier and can increase your chances of getting mortgage loans without resorting to getting them from shady lenders.
2. Make sure your credentials and financial records from the past two years are clean.
When deciding to purchase a home and getting mortgage loans, make sure your past two years of working as a freelancer or self-employed individual is clean. You should have a good credit history. Make sure you do not have history of bankruptcy or have many late payments on your previous loans. Your financial records should reflect that you are a good payer and that you are capable of paying your loans in a timely manner.
3. You should provide documents that you have a stable freelancing work in the past two years.
Provide concrete proofs that you are self-employed or have a stable freelancing career in the past two years. Get as many documents as you can that will help lenders assess your paying capability.
Before, freelancers and self-employed individuals need only to sign a form that stipulates how much they are earning annually. The regulations have changed recently and when you are directly transacting with a bank, you may only get a loan of a maximum of 65% of your prospective home’s value.
If you need a higher loan, you will have to acquire mortgage default insurance. This is why self-employed individuals or business owners with a high net income but few credentials and low tax returns use the services of mortgage brokers to help them find lenders that are willing to overlook many of these requirements. With the help of a mortgage broker, you can find lenders that will offer mortgage value maximum of 80% without having to acquire default insurance.
4. Look for lending or mortgage programs specific for business owners, freelancers or self-employed individuals.
There are lenders that have a specific and unique program tailor-fitted for the needs of this particular group. You don’t go through the traditional verification process but you will be based on the income you are earning. The higher your stipulated annual income is, the better your chances of getting good mortgage rates are.
Ultimately, be on the lookout for credible mortgage brokers who will be able to open up easier application and approval methods for you. See to it that the broker you are using already has experience in finding good mortgage lenders for self-employed people like you. Make sure they are associated with private lending companies with good payment terms.