Home Buying for Self-Employed Canadians
Posted November 11, 2020
Canada’s real estate market is going strong this fall, as homebuyers continue to make up for a slower-than-usual spring housing market. With historically low interest rates, many first-time buyers are getting ready to purchase their first home. For existing homeowners, today’s favourable rates can make it an excellent time to refinance.
Are you in the market for a mortgage? Here are 5 things you need to know, courtesy of Zeynep Babir, Mortgage Strategist with 8Twelve Mortgage.
Mortgage tip #1: Time is on your side
While self-employed first-time homebuyers can face additional challenges in attaining the best mortgage rates, don’t panic: today’s low rates won’t be disappearing anytime soon!
The Bank of Canada maintained its 0.25% overnight rate in September, reaffirming its commitment to holding down interest rates while the Canadian economy recovers from the Covid-19-induced downturn. What this means for homebuyers is, today’s low mortgage rates will be sticking around for a while.
“Whether you want to buy your first home or refinance an existing mortgage, don’t jump in until you’re ready. You have time to get your financial house in order first,” says Babir.
Mortgage tip #2: Consider your bottom line
“One of the big issues with self-employed income is that income is not always easy to prove. Many business owners are inclined to expense as much as possible in order to minimize their tax burden. Although this is a huge benefit on one hand, it also may hinder their chances of qualifying for a traditional mortgage,” says Babir.
There are a couple of ways to mitigate this, “one option may be to dial down the tax write-offs. Another is to find lenders that consider looking at your business gross income rather than just your net income. This typically means looking beyond the major banks,” explains Babir.
TIP: If you have a salaried position now but are hoping to start your own business or go freelance, consider holding onto that salaried position until after you’ve purchased your home or have secured refinancing on an existing mortgage.
Mortgage tip #3: A bigger down payment is better
“The higher the down payment, the less money you’ll have to borrow to buy a home. Not only does it give a lot more security to the lender, it makes you less of a risk. By make a 20% down payment, you also avoid having to pay mortgage default insurance, which can trim thousands of dollars over the life cycle of the mortgage, in turn reducing your financial strain,” says Babir.
With interest rates expected to stay low for another year or two, you have time to save aggressively and build your nest egg. “If you can’t save a 20% down payment, even 10% makes a difference in terms of your mortgage options,” says Babir.
Mortgage tip #4: Consider your credit
Credit score plays an important role when it comes to home purchasing, but even more so for self-employed folks. “Before you apply for a mortgage, make sure to pay off as much of your outstanding debt as possible. A good credit score serves as proof that you are responsible and prompt at paying your debts,” says Babir.
Stay on top of your credit score (“Ideally, your credit score should be over 680,” says Babir) and report any discrepancies immediately.
Mortgage tip #5: Get professional mortgage advice
Finally, consider getting a professional mortgage broker on your side. Brokers have access to a much wider range of lenders and mortgage products than bank representatives do.
“We have extensive experience working with self-employed clients and understand their unique needs. Having strong relationships with over 50 lenders, including major banks, credit unions and a variety of alternative and private lenders allows us to provide our clients with a variety of customized flexible solutions specific to their needs. We are their one stop shop – we do the work for them, so they don’t have to,” says Babir.
Seeing a professional could help self-employed people qualify for a larger mortgage, lower interest rates and/or other mortgage features that can save money over the short and longer term.
Want to learn more about mortgages? Check out our blog, here.