22 Jun Self-Employed Blues?
18 million people work in Canada and women and men divide the jobs almost 50/50.
Three millions of Canadians, or 16% of Canadian are self-employed, a group that, according to Statistics Canada, has a higher median net worth than paid employees.
So I am always puzzled to find we are treated like third rate citizens when we apply for financing.
Putting aside the difficult task of business loans, mortgages are difficult if you work for yourself.
In the summer of 2012, the Office of the Superintendent of Financial Institutions introduced Guideline B-20 (sounds pretty ominous), which requires federally regulated banks to tighten their processes for approving mortgages and home equity lines of credit.
As part of B-20, banks must now look more closely at incomes before approving a mortgage application. This is a challenge for the self-employed as there are usually discrepancies between claimed and earned income. We tend to overclaim, lowering our net income to a point it does not get us qualified for anything.
Self-employed workers can still apply for a stated income mortgage at some banks, but under B-20 they can borrow only 65 per cent of the purchase value – 10 per cent less than what was allowed before B-20 – without requiring default insurance from Canada Mortgage Housing Corp. So, any less than 35% down payment and you have to pay an insurance premium!!
To complicate things even further, CMHC will allow a stated income application as long as you have been self-employed for less than three years. More than three years and you have to qualify according to your net taxable income.
Note that this B-20 does not apply to credit unions, they often lend up to 80% loan to value to the self-employed.
Meridian, for example, would be a good choice.
Be prepared to produce Notice of Assessment (if you don’t have it, register online on the Revenue Canada web site) and your income tax must be paid up.
Most importantly, getting financing if self-employed is not for the weak of heart and you REALLY should be dealing with a mortgage broker who is capable at navigating these waters.