How to get a mortgage if you're self employed

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In this video we look at how to qualify for a mortgage if you're self-employed

and what are the financial requirements to qualify for a mortgage, that's

starting right now.

Welcome to Homebuyer's School brought

to you by Brookfield Residential.

Hi everyone, welcome to another Homebuyer's School

video, a channel where you get the latest strategies tactics and tips from

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below, hit the little notification bell so you don't miss anything. Today I'm

joined by Mujtaba Syed, manager mobile mortgage specialist with TD Canada Trust

and the question we're gonna answer today is how do you qualify for a

mortgage if you're self-employed?

Yeah that's a great question,

so most lenders are very similar when it comes to self-employed income or if you

are self-employed they want to see that you've been self-employed in the same

industry for at least three years and what they want to do is they want to see

somewhat of a consistency right so they're most likely going to use a two

year average of the income that you have reported from being self-employed and

and then there are some lenders they have ways where they could maybe gross

up that income understanding you're self-employed you have certain expenses

and then kind of see from there but there are other things as well that we

can do with self-employed, we can look at your financials we can take a look at

your taxes to see what you have kind of shown to pay a little bit less because

self-employed there is that benefit of being self-employed we can

control how much taxes you end up paying, but you definitely want to see what's

available. Now the insured-- there's an easier way to get approved to the

insured self where we have come to call a state income program through Genworth

where you can see if it's a little bit easier to try it that way, once again

it's a discussion to have with your lender and your specialist and

definitely interview your lender and your specialist to see if they're very

familiar when it comes up to self-employed policies because they

differ quite a bit and in if someone who's not very proficient in dealing

with self-employed people or self-employed borrowers they might not

know which policy to apply so once again ask them: Have you dealt with a lot of

self-employed? What do you-- how do you feel? Do you-- have you gotten

a lot of approvals for self-employed income? --and then kind of go

from there, but self-employed definitely there's-- just because you're

self-employed does not mean that the bank will not lend to you. They might ask

you for a little bit extra documentation to kind of see where your income is

coming from but at the end of the day if your lender is very proficient with

their policies with self-employed, they should be able to help you.

Well I know

you touched on financial requirements so maybe it isn't just for self-employed

but what are some of the financial requirements that you-- that need to

be met to qualify for mortgage?

Yeah great question Karl, so the financial requirements that

are needed by the lender is to see repay-ability right, when a

lender wants to lend you a mortgage they want to see that you can definitely

afford to pay that back. Banks are now in the business of lending money and trying

to recoup their assets or their homes, they want to make sure that you can pay

back what you borrowed and that's where the financial requirements come in for a

self-employed they want to see, well on paper how much are you showing on paper?

And on paper if you're not showing a significant amount maybe they can try to

find other ways to kind of prove your repay-ability for someone who's not

self-employed it's technically a lot easier because it's very cut and dry to

take a look at your income, if it's salary based they'll see how much salary

you're getting, they might take into account if you make any bonuses or if

you're getting some kind of share structure ownership or anything like

that. They might want to take all those into account and if you're not on

salary and you're working an hourly basis they might even want to see if

you're getting something like overtime, if you're working a lot to overtime, if

you have consistency over the overtime, they can take a look into that if you

work different shifts and you get shift differentials at a

higher rate of pay, they might want to take a look at that but for most banks

what they really like to do, like to see consistency they don't want to see

something over a two-year period to see does this make sense, is this consistent

with what we think and your bank is always trying to help you, definitely to

get it will qualify for mortgage until they're trying to look at a

lot of different options to see if you can qualify or not for sure so

definitely have a conversation with your lender when you're sitting down with

them, explain to them all the avenues that you think

you can make income like if you're working overtime bring that up if you

have shift differential, definitely bring that up if you're getting some

kind of allowance at work like a car allowance, or a phone allowance, or a

moving allowance, or etc. whatever it is, definitely bring that up so they can

actually see if they can actually add that to your income to help you qualify

for your mortgage.

Oh I didn't know that, that you could actually use your

overtime, your bonuses actually help you qualify. I thought it was just you know,

your set salary or your hourly wage.

Oh that's a great question, so a lot of

people unfortunately maybe don't realize that right, they do want to take a look

at it over time but you do want to take a look at it over the two years, like I

said they want to look at consistency so if you're consistently working over time

over a two-year time period they will take an average of the two years to see

does this make sense, same with bonuses if you're consistently

getting bonus over to your time period they want to take a look into that

because all time is an added benefit to you like you've worked hard for your over

time or you've worked hard to get a bonus, banks will definitely take a look

at that and actually use that towards your income qualifying capabilities.

And if you want to know more about how much you can get qualified for a mortgage, check

out our video above. I guess the last question I have is, does either for

self-employed or a salaried workers, how about low income or kind of bad credit,

how does that impact the ability to qualify?

Yeah another-- another great

question Karl, so low income unfortunately you're gonna have a harder

time with a repay-ability portion of what you're looking at borrowing so when

it comes down to having lower income there's just no other way around it right,

unfortunately you might want to look at maybe reducing your budget, maybe

find something that fits more into what you can qualify for so you can actually

have a comfortable payment. You can always look at getting a cosigner you

can look at doing these things but I always like to tell people is that

getting a cosigner might help you qualify for a higher mortgage but keep

in mind it's you at the end of the day that has to make that payment right so

if you're not comfortable making that payment and you feel like that budget is

just too much for you then maybe just kind of reduce it and then kind of see

in a couple years where you could move into something a little bit let's say,

smaller or cheaper and then you can actually build

up their savings and maybe you get a higher income in the future, you can

always upgrade later on right so don't ever, don't ever-- what we call just "money

pinch" to get into a home or become "mortgage poor", it's another term that we

like to talk about where most of your

budgeting is going towards your housing cost.

So, another thing that you brought up was poor credit. So poor credit

definitely impacts right so when it comes down to credit we kind of-- the

bank's look at that as character. We will look at to see if you have made a

promise to pay right, having a credit card is a promise to pay having a loan

or a line of credit is a promise to pay, same ways as a cell phone and if you're

late on your payments or you have a major payment you haven't really lived

up to your obligations or your promise so when banks are looking at lending

they aren't going to look at your credit to see do you keep your word, do

you-- are you on top of your payments because that could really impact if they

want to lend to you, maybe you won't stay on top of your payments so a lot of

great things but it doesn't mean that if you made a mistake in the past that it's

over, no banks will actually look into that if there is a certain scenario that

kind of makes sense and you explain to them it could be in a one-off situation,

they would a hundred percent consider that as well. Also if you have made some

mistakes in the past, now you worked hard and better at your credit or working to

better your credit, banks will also take a look at, they'll also give

you a second chance or a second review once your credit gets better so

it's just-- it's not-- the end of the day if you have some basics in the past it's

always trying to show the bank or the lender or the specialist that you are

working hard in making that right.

Last question in terms of self-employment though,

does it matter if you've set up a corporation or you've set it up your as

like, sort of your own business?

Yeah, good question. So there are definitely

benefits of both right, to see, but we would-- we would

definitely take a look at your employed "sole proprietor" as we call it

or being incorporated as what Karl had mentioned and then have different

requirements. It's very lengthy and detailed to go

into kind of right now but definitely if you're one of those two scenarios,

definitely speak to your lender and they can explain to advise you which policy

is best based on that for you, which

self-employed policy is gonna help you get qualified and definitely talking

about something we call add backs or business financials and stuff. Have that

conversation with them and they can advise you exactly which route to take

for the most easiest approval.

Perfect. The question I have for you is, are you

self-employed and if you are, did you run into any issues

regarding getting approved for a mortgage? Let us know in the comment

section below, and remember if you have-- if you want to watch any more of our

mortgage or mortgage rate videos, check it out in the description below. Thank

you very much for joining us and we'll catch you next time.

That's another edition of

Homebuyer's School. Tune in next time

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