Mortgage broker can be a valuable ally
Process of securing a mortgage is different when you’re your own boss
Marielle Nugent realizes self-employed people are not held in high regard ar most lending institutions. “Banks see us as a high risk,” says Nugent, who has owned and operated a Mississauga-based translation company for nearly 30 years.
She sure knows. When Nugent purchased her first home years ago, the amount the lender was willing to give her was “very low,” she says.
“But because I had a high down payment — 50 per cent — I was able to borrow from the bank. If I didn’t have that I would have had to approach it differently.”
Nugent did approach things differently when she bought her next residence, a detached home in Mississauga.
She went with a broker, who shopped around for a lender that best suited her situation.
“For someone who’s self-employed, I found the only solution is to go through a mortgage broker,” she says, noting the increased levels of scrutiny the self-employed face following the introduction of stricter mortgage rules in 2012.
Previously, lenders would assess the risk of a selfemployed borrower based mainly on a credit rating and size of the down payment.
Aself-employed applicant’s savings, debt repayment history and business cash flow were also taken into consideration.
Now, however, lenders are focusing most intently on the stated income of a self-employed applicant.
“So you need your notices of assessment, income statements, and if you’re incorporated you might have to bring your incorporation papers,” Nugent cautions.
“It’s twice the amount of paperwork for self-employed people than for somebody who holds a regular job with a regular paycheque.”
Robert DiMatteo may be a seasoned real estate investor and owner of more than 100 properties, but as someone who’s self-employed, Robert DiMatteo still finds it hard to deal with lenders.
“When you’re working for a big company and you’ve been there for 20 years and have the supporting documents, it’s almost a slam dunk,” he says. “That’s what lenders are looking for: cookie-cutter stuff that fits their criteria easily.”
“It’s a lot more complex than for regular homebuyers,” he says. “Selfemployment is not something (banks) are accustomed to dealing with.”
A mortgage broker has proven a valuable ally for DiMatteo on many deals.
“The key for me was aligning myself with someone who gets the real estate investor’s mentality: who understands my portfolio, my goals and is a bit more up to speed with the process. They become a coach and guide you along the way.”
The key for self-employed mortgage seekers, he says, “is to have your paperwork at the ready.
“It’s critical you have all the information that will help to support your case as being successfully self-employed.
“Because just when you thought you’ve addressed every imaginable requirement, lenders will throw something else at you at the very last minute.” Timothy Luginbuhl is a successful entrepreneur, running his own production company in Toronto. But as someone who is self-employed, the experience of trying to get a mortgage for the east-end home where he now lives with his family was complex.
Whereas conventional mortgage applicants with steady, salaried jobs can simply demonstrate annual income with a T4 slip, self-employed individuals — small business owners and freelance professionals like Luginbuhl — are assessed by lenders based on their stated income. Luginbuhl was successful in securing a mortgage, proving his credit history using tax returns, contracts and financial statements from his business to prove his reliability and earning power. Still, he found the process perplexing. “There wasn’t a standard approach across all the lending institutions,” he says. “Some of them looked at you as a business they needed to see financial statements from. While others looked at you purely from the standpoint of net worth: they looked at your company’s revenue, then your
“Brokers understand self-employment and have relationships with different lenders. So it was easier for me to work with a broker than it was to puzzle out what each of the institutions was using as criteria.”
TIMOTHY LUGINBUHL
personal revenue and your assets.”
Luginbuhl enlisted the help of a mortgage broker, who facilitated things considerably, getting him a deal with a lender he says he wouldn’t have been able to find on his own.
“Brokers understand self-employment and have relationships with different lenders.
“So it was easier for me to work with a broker than it was to puzzle out what each of the institutions was using as criteria.”
Self employment is becoming more common, as an unpredictable economy leads to layoffs and career reinventions across all industries. Luginbuhl — who believes he’s got more stability running his own shop than when he worked for a big company — reckons lenders should be more understanding of this growing self-employment reality.