Category Archives: self employed buyers

Stated Income Simply Stated

Self-employment has been trending upwards in Canada in recent years. In its 2015 Spring Survey, CAAMP estimated that five per cent of home buyers worked for themselves.And it’s no wonder that the ranks of self-employed workers are growing. Apart from involuntary reasons like job dislocation, many choose self-employment for the lifestyle benefits, like making your own schedule, being able to work from home and deducting day-to-day expenses such as fuel, utilities, telecommunication and networking costs. That last point is a big one. It can be highly advantageous to earn, say, $100k per year, and then whittle it down with legitimate write-offs in order to achieve a much lower tax bracket.

The often-misconstrued disadvantage of being self-employed, however, is the challenge of getting a mortgage. After all, a key to borrowing is the ability to repay, which is linked to one’s earnings, usually provable earnings.

Fortunately there are programs in place from various mortgage lenders that can accommodate the unique circumstances of the thousands of self-employed buyers.

Accessing these lenders usually requires one to venture outside the normal borrowing channels—those being banks or trust companies. Although banks and other “A” lenders have their own self-employed lending programs and more favourable rates, borrowers often get bogged down with their paperwork requests, to the extent that many “business for self” applicants cannot meet all of the lender’s documentation requirements.

Fortunately, mortgage brokers have access to simple and easy alternatives provided by lesser-known private lenders. As one such lender, Magenta Capital Corp. offers a “no-doc” program (well actually it’s more of a “low doc” program) that makes life less cumbersome for self-employed borrowers.

The program requires only that clients provide their most recent NOA (notice of assessment) to prove their taxes are up to date. Unlike most banks and institutional lenders, Magenta doesn’t use the NOA to gauge income. It instead relies heavily on the property equity for its security, for which a standard appraisal is used to confirm the value.

At this point you may be thinking, ‘This seems a little too easy. The catch must be incredibly high interest rates and fees.’

The reality is that rates can be as low as 4.99% with a 1.5% fee (which is added to the loan amount). And, provided your credit rating is over 575, you can access up to 75% of your home’s value through this program. If your score is 650+, that goes up to 85%. Better yet, this can all be done with a 40-year amortization to keep your payments manageable until you can qualify for cheaper bank financing.

Lenders offering these sorts of low-document lending programs rely primarily on the borrower’s previous repayment history and the property itself. That’s important to keep in mind. It’s also essential that the property is located in a high density area—i.e., a city or its various suburbs.

If you have a legitimate self-employed business, an urban property and no worse than minor credit blemishes, remember that flexible stated income programs still exist. They can help you get in a home much sooner, even if you can’t prove income the traditional way.

Source: Canadian Mortgage Trends – September 14, 2015  Guest Post 

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Borrowing is tougher for self-employed

Homebuyers looking for a mortgage are finding conditions are getting tougher if they are self-employed, at a time when there is an increasing number of self-employed Canadians. Solid credit scores are multiple years in business are still not making it easy for business owners to buy their own home. Chad Oyhenart, a Vancouver-based mortgage broker at Dominion Lending Centres told The Financial Post that conditions are tougher as the result of rule changes over the past 7 years: “They just want to make sure that they’re not putting Canadians into situations that they can’t get out of, so that we don’t end up being the U.S.” Jeff Mark of Spin Mortgage also sounded a supportive note for tighter regulations commenting that they were too loose in the past. He says that the self-employed may have to take larger incomes from their businesses, meaning more tax to pay, in order to qualify for mortgages.
Source: MortgageBrokerNews.ca Steve Randall | 24 Jul 2015

Get your free summer mortgage check up now

Get your free summer mortgage check up now.  We are exactly half way through the year. Are you meeting all the resolutions you made for 2015? Are you on track to meet your financial goals? Are you thinking of:

  1. Refinancing to reduce your mortgage rate
  2. Consolidate high interest credit card debt
  3. Refinance to do much needed upgrades or renovations
  4. Cash out equity to buy a second home or investment property
  5. Cash out equity to start a business or purchase a franchise
  6. Cash out equity to give your kids or grand kids a financial gift

It may be much easier than you think to achieve your goal, so don’t procrastinate.

Schedule your no obligation mortgage consultation with the Ray C. McMillan Mortgage Team to explore your options. 

#mortgagesmadesimple

When it comes to credit, many consumers – particularly Millennials – don’t understand the score

Many consumers, particularly Millennials, don't understand the score

Only one in five consumers know that bad credit scores are likely to increase finance charges by more than $5,000 over time if you’re taking out a $20,000 five-year car loan, according to a new survey.

Some consumers know that they’d pay more in interest when buying a new car, if they had a lower score but they don’t understand how big the cost will be, according to the fifth annual national credit score survey released Monday by the Consumer Federation of America and VantageScore Solutions.

Credit scores are designed to help lenders calculate the risk that a given borrower will not repay a loan.

Millennials had some larger knowledge gaps than others, too.

About 27 percent of Millennials—those age 18 through 34—did not realize that a 700 credit score is usually a good credit score. That compares with 19 percent among consumers who are at least 35.

About 39 percent of Millennials surveyed did not understand that the three main credit bureaus collect information on which scores are based. That compares with 30 percent for consumers who aren’t Millennials.

The telephone survey by cellphone and landline, undertaken by ORC International from April 9 to April 12, showed that more consumers this year, compared with the previous year, did understand that the cost of an auto loan goes up with a lower credit score.

Barrett Burns, president and CEO of VantageScore Solutions, said consumers tend to be better educated about credit scores than when the surveys first began five years ago.

About 66 percent of consumers, for example, know that making payments on time, keeping credit card balances low or paid off and not opening several credit cards at once will help raise a low credit score over time or help maintain a good score. That compares with 55 percent of consumers from last year’s survey.

Stephen Brobeck, executive director for the Consumer Federation of America, said he’s hopeful that consumers will get more information about how to improve their credit score from a revamped site that has 12 questions. The site is at creditscorequiz.org.

Both Brobeck and Burns noted that it is important for consumers to shop around for loans to make sure they’re getting the best deals.

It’s also key to make sure the information on your credit report accurately reflects your payment history and borrowing habits.

A way to get a free credit report is to visit annualcreditreport.com or call 877-322-8228.

The federal Consumer Financial Protection Bureau works with consumers to help resolve complaints about credit scores and credit reports. But before filing a complaint at consumerfinance.gov/complaint, consumers are asked to file a complaint and obtain a response from the credit bureau or other company with which you are dealing.

Source: Redeyechicago.com Susan Tompor May 8, 2015

Open up your eyes in open houses

Do you really know what you should be looking for when attending open houses?CREW offers some helpful advice to ensure these trips are worthy and informative.

1. The Neighbourhood

Buying a home is a package deal: it comes with the neighbours. During your visit make note of the traffic speeds, the conditions of the homes in the area and the presence (or absence) of local amenities, especially retail and schools.

Also, look to the neighbouring properties. Are those homes well taken care of? Does it seem like dogs or children live next door? That can give you a good sense of what the neighbours will be like.

2. Privacy

Look out the windows and around the backyard. Does the bedroom window look right into the neighbour’s bathroom? Is the backyard too open, inviting unsolicited visits? Remember: good fences make good neighbours.

3. The Exterior

It’s not just the inside of the home that matters; the house’s exterior can make or break a deal. Look up: does the roof look like it needs new shingles? That can be a costly repair. Now look down: are the wooden boards on the deck rotting? Is the driveway going to need to be repaved? A poorly maintained exterior can also forewarn you of what may be waiting inside.

4. Good flow and layout

The photos you see online won’t reveal how the home flows. For example, is the kitchen near the dining room? Follow the flow with the needs of your targeted tenant in mind.

5. Smells and stains

The nose knows! An odd odour can be a telling sign. Do you sense stale cigarette smoke? That could be a tough scent to remove from carpets. Or maybe you smell something moldy, which could be a far worse problem to have.

Also look around for suspicious stains and watermarks. Water stains can point to a leaky roof or former flood, which might later reveal mold.

6. Light and air

Open windows and pull aside curtains. See how much natural light enters each room and how much air flows through the space. Opening a window during the summer can cut down on the use of air conditioning.

7. Closet and cabinet space

Closet space can be a big deciding factor for buyers, especially for those that are downsizing from larger spaces. If you are staging an open house, ensure that such areas are clean and spacious looking.

8. Signs of renovations

Several people consider themselves handy, but it takes a lot more than a roll of duct tape and some glue to carry out full-scale renovations. If part of the home looks like it’s been altered, ask the listing agent about it and make sure to see a copy of any building permits.

9. The questions

Have a complete list of questions for the agent showing the property. For example, when was the property constructed, how old is the water boiler or how long has the property been listed? Open houses provide a great opportunity to get a real insight into a property.

10. Take pictures and notes

Take notes of any issues that you spot, as well as pictures, during viewing. Use these notes to help in your buying decision – they may also help during the negotiating process.

Source: Canadian Real Estate Wealth – 28 May 2015

CMHC goes from insuring 90% of new mortgages to only 50% — and that’s as low as it plans to go

CMHC insured 175,169 new home loans last year worth $41.7 billion, which comprised 54 per cent of the market and that’s dropped to about 50 per cent so far this year.

CMHC insured 175,169 new home loans last year worth $41.7 billion, which comprised 54 per cent of the market and that’s dropped to about 50 per cent so far this year.

Source: Financial Post

Katia Dmitrieva, Bloomberg News | May 28, 2015 3:02 PM ET

Canada’s national housing agency says it’s now insuring a record low 50 per cent of new residential mortgages, and it doesn’t intend to let it drop any further.

Canada Mortgage & Housing Corp. Chief Executive Officer Evan Siddall said that after years of cutting its share to reduce taxpayer risk to the $1.2 trillion mortgage market, the agency plans to hold firm. CMHC’s stake of the new mortgage-insurance business has dropped from about 90 per cent during the 2008 financial crisis, and a pre-crisis low of 57 per cent.

“We’re very comfortable with our market share around 50 per cent,” Siddall said at Bloomberg’s Toronto office May 22. “It’s important for us to have a substantial presence in the marketplace so that we can give access and information to Canadians, we can give good policy advice to government” and can act as a shock absorber in case of a financial crisis.

The agency insured 175,169 new home loans last year worth $41.7 billion, which comprised 54 per cent of the market and that’s dropped to about 50 per cent so far this year.

The vow to retain half the market may limit growth of private rivals such as Genworth MI Canada Inc. and Canada Guaranty Mortgage Insurance Co. Shares of Genworth MI, part-owned by Richmond, Virginia-based Genworth Financial Inc., have risen 36 per cent in the past two years as its market-share rose, compared with a 19 per cent gain in the broader Standard & Poor’s/TSX Composite Index.

Legal Cap

CMHC had $543 billion of mortgage insurance in-force, or total mortgages it insures, at the end of 2014, according to the agency’s annual report. That’s just below its legal cap of $600 billion and down 4.1 per cent from 2012.

Residential mortgage credit at banks and non-banks totalled $1.2 trillion as of March, according to figures from the Bank of Canada.

Genworth MI had $365 billion in insured loans as of March 31, according to financial documents. Canada Guarantee, co-owned by the Ontario Teachers’ Pension Plan, is closely held and doesn’t disclose insurance in-force.

Brian Hurley, executive chairman of Genworth MI, said last year he expected CMHC to command only a third of the market in the future.

CMHC is “still going to have a third of the market and two-thirds of the market can go to the private sector,” Hurley, then CEO of Genworth MI, said at a Sept. 4 financial summit. “How are they going to get there? That’s a good question. One easy path could be the limiting they’ve done over the last few years.”

‘We’re Comfortable’

Current Genworth MI CEO Stuart Levings said the company offers value above the government-backed insurance agency.

“We believe we are the mortgage insurer of choice — when a lender has a choice they pick Genworth,” Levings said at Bloomberg’s Toronto office. “It’s admirable for a competitor to say ‘I’m going to maintain a certain share level.’ I respect that. We as a competitor will continue to fight for market share in a responsible prudent, manner.”

“Canada Guaranty has experienced significant growth over the last several years by increasing our customer base and deepening current lender relationships,” Mary Putnam, spokeswoman from Canada Guaranty said in an e-mail statement. “We are well positioned for increased market share.”

CMHC would boost marketing, customer-service efforts, and perhaps lower premiums, if CMHC’s share of the market slid much below 50 per cent, Siddall said.

Gains Tougher

“We’re comfortable for two reasons at our all-time low market share: we have vigorous, healthy competitors,” Siddall said. “And because we’ve adjusted to having that market share and managing it.”

Siddall, previously an adviser to former Bank of Canada Governor Mark Carney, spent more than a decade in the financial sector at firms including Goldman Sachs Group Inc. and Bank of Montreal.

CMHC can hold onto its 50 per cent stake “pretty easily,” Paul Holden, a Toronto-based analyst at Canadian Imperial Bank of Commerce who covers Genworth MI, said by phone Tuesday. “The implication on Genworth is probably that future market-share gains are going to be a lot tougher to come by.”

Three of the eight analysts who track Genworth MI rate it a buy and five say hold. The average 12-month stock price target is $39.50, 18 per cent above its closing price of $33.60 on Wednesday.

The company reported profit rose 13 per cent to $107 million in the first quarter from a year earlier as premiums grew 55 per cent to $130 million.

Shorter Amortization

CMHC is 100 per cent backstopped by the government so as arrears arose during the 2008 financial crisis, lenders including Royal Bank of Canada and Toronto-Dominion Bank, turned to the agency to insure more mortgages. Genworth MI is 90 per cent guaranteed by the government in cases of default.

The federal government has actively sought to limit CMHC’s role as home prices have surged in Canada. Toronto home prices jumped 48 per cent to an average $545,400 in April from the same month in 2008. In Vancouver, they rallied 19 per cent to $673,000 over the same period.

The department of finance made CMHC insurance unavailable to homes above $1 million, lowered the maximum amount homeowners can borrow against the value of their homes to 80 per cent and cut maximum mortgage amortization periods several times to 25 years. A mortgage with less than a 20 per cent downpayment must be insured in Canada.

Risk Sharing

CMHC itself increased mortgage-insurance premiums by 15 per cent last year and this year raised premiums on mortgages with less than 10 per cent down, with the change coming into force June 1. Oakville, Ontario-based Genworth MI followed suit with its own premium increase. CMHC also no longer insures second homes or condominium construction financing.

CMHC is speaking with the government on a new risk-sharing model, Siddall said. The department of finance is leading talks with banks, and the housing agency and other federal departments are supporting with policy and research, Siddall said.

“I’ve talked about risk sharing with lenders as a sound idea and so has the Minister of Finance, and that work’s still going on,” Siddall said, referring to Joe Oliver. “It could have different design features.” Two possible options are a deductible structure where lenders take the first hit if a loan goes sour or one where the loss is shared, Siddall said.

CMHC doesn’t expect Canada’s hot housing market to suffer a sharp correction, Siddall said.

That’s because CMHC regularly conducts stress tests that include catastrophic events such as global economic deflation and a U.S.-style housing crash, modelling the impact of a 5 per cent rise in unemployment and a 30 per cent drop in home prices. Even in those worst-case scenarios, the agency would have enough capital to weather them, Siddall said.

“Markets go up and markets go down and we’re in a period right now where markets are a little up,” Siddall said. “We don’t see the conditions that could cause it to have a sharp correction.”

Super-low rates are here to stay – at least if the Bank of Canada heeds one real estate CEO’s advice.

Getting Mortgage Loans at Low Interest Rates Is Not So Difficult

CANADIAN REAL ESTATE WEALTH

by Justin da Rosa 06 May 2015

“The housing sector is a key source of strength to Canada’s economy,” Phil Soper, CEO of Royal LePage, wrote in a LinkedIn post entitled Bank of Canada Should Stand Firm in wake of Canadian Economic Stagnation.

“Now more than ever it is important to keep markets functioning by holding firm on low rates.”

According to Soper, the Canadian housing market is healthy and the Bank of Canada can ensure it remains so in the future by holding interest rates at current levels while the economy bounces back from the current weakness of the energy sector.

Soper also weighed in on Toronto and Vancouver’s housing markets – oft-debated hot markets that resisted the kind of slowdown affecting many other major centres.

“The concern here is that strained affordability leaves these markets more susceptible to external shock,” Soper wrote.

“If policymakers are to assist the market in these two mega-cities achieve a ‘soft landing,’  I believe the safest approach is to let demand cool with seasonal change, giving the rest of the nation time to work through the impact of the oil shock.”

Despite a “stalled” economy in the first quarter of 2015, the Bank of Canada revealed some optimism as it held steady the target for the overnight rate at its rate announcement in mid-April.

“Risks to the outlook for inflation are now roughly balanced and risks to financial stability appear to be evolving as expected,” the Bank of Canada wrote in an official release.

“The Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore is maintaining the target for the overnight rate at 3/4 per cent.”