self-employed-mortgage

Update on Mortgages for the Self-employed

Recently, we wrote a post about how self-employed individuals can be approved for a mortgage. Self-employed mortgage applicants face additional challenges because they pose greater risks to lenders because their income can be unpredictable.

Last July, self-employed people looking to enter the housing market received some good news. The Canadian Mortgage and Housing Corporation (CMHC) announced that they will try to make it easier for self-employed people to get a mortgage.

Let’s review how changes from the CMHC might help self-employed people buy a home.

Changes to Lending Philosophy

Self-employed people make up roughly 15% of Canada’s workforce so it was necessary for changes to come about. CMHC wants to support lenders and encourage them to approve mortgages for self-employed.

The changes include:

  • Approving borrowers who have been in the same line of work for two years.
  • Approving borrowers who have been self-employed for less than two years.

Factors to Help Lenders

CMHC has outlines several factors that lenders can now use to approve mortgages for self-employed applicants. These include:

  • Purchase of an established business
  • Stable monthly earnings
  • Adequate training and education
  • Cash reserves

Prior to these changes, a lender could approve a self-employed applicant but they were not supported by the CMHC, who ultimately insures and secures the loan.

Documentation

Self-employed applicants have always had problems overcoming the lack of documentation to prove they are a viable loan candidate. CMHC has provided more documentation options for applicants to help them get over the hump.

Starting on October 1, 2018, applicants can provide a notice of assessment with a T1 General tax form, CRA proof of income statement, a T2125 form, which outlines professional activities.

Having more flexibility when it comes to the required documents will arguably remove the largest barrier.

Down Payment

This falls outside the purview of the new CMHC changes, but having a down payment that exceeds 20% means you will not have to pay for mortgage insurance. This remains the easiest way for self-employed people to secure a mortgage.

Contact us if you’re self-employed and want to discuss your mortgage situation. We can help you understand what you will need to be approved and how these recent changes can work in your favour.

loan post secondary

Loans for Post-Secondary Education

A post-secondary education can be quite costly. There’s tuition and books but also other costs like housing, food, transportation and general living expenses. The reality is that a post-secondary degree is typically the first step toward a financially and rewarding career but many do not have the means to pay for their education.

Different types of loans are available to help people pursue a post-secondary education and receive a degree.

OSAP and Bursaries

For those who cannot pay out of pocket, they typically rely on the Ontario Student Assistance Program (OSAP) or a monetary award called a bursary. Here’s the thing: many Canadians make too much money to qualify for OSAP or they do not receive enough to cover the full cost of their education. As for bursaries, they are usually based on academic achievement or are provided through an organization for people who meet the criteria.

Many people will not be eligible for bursaries and will only receive an insufficient amount of money from OSAP.

Secured or Unsecured Loans

There are two proven options to pay for your post-secondary education. The first is a home equity line of credit, and the second is a personal loan. A home equity line of credit is a secured loan that lets you use your property as collateral to secure funds. It typically comes with a lower interest rate.

A personal loan could also work. Depending on the lender and your credit history, this could have a more favourable interest rate than OSAP.

Not all Degrees, Diplomas and Institutions are Eligible

 OSAP won’t even cover every type of education and some institutions are not allowed to offer Government financial assistance. Certain trade schools, for instance, might not be recognized or if you plan to attend school in another province or country than you might have to find other means to pay for it.

Increase Earning Potential

Your post-secondary education is a sound investment. By gaining a diploma or degree, you can increase your earning potential and open doors to the jobs, companies and industries that might otherwise be off-limits. It’s an investment in your future and your potential.

The best advice is to speak with a lender to get a better idea what a loan for your post-secondary education could look like, and if it is a viable option for your situation.

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Why your Home isn’t Selling

There is nothing more frustrating than putting your property on the market, then watching it sit there month after month without ever receiving an offer. If you have a property that isn’t garnering a ton of interest, it might be wise to pull it off the market and to regroup with a new strategy or with a new real estate agent.

Before you make any rash decisions, it’s good to review why your home might not be selling. Some small improvements to your property, listing or strategy could lead to the offer you’ve been hoping for.

Here are some reasons why your home might not be selling.

The Market

There are certain economic factors which could dictate the speed at which your home could sell. The housing market is the biggest and it’s out of your control, for the most part anyway. The health of the market should determine when your listing goes live.

Your real estate agent should understand what is happening in the national, local and neighbourhood markets. The best advice is the most obvious advice: take advantage of a hot sellers’ market, and try to hold out if the market cools.

Staging

Staging is the act of preparing a home for a sale. It can mean new furniture, painting the exterior and interior of the home and even some cosmetic renovations. Most people hire a stager or their agent works directly with one.

Staging is key to generating offers. A lack of offers means your stager and agent might have to hit the drawing board again to make the aesthetic of your home more attractive.

Your Real Estate Agent

It’s your real estate agent’s responsibility to drum up interest in your home. When deciding on a real estate agent, ensure they understand the market and have had some successful sales in your neighbourhood.

Don’t be scared to ask your agent to provide a new strategy if your home isn’t selling. A good agent will adjust as they go and find new ways to tap into the housing market. They should also evolve their strategy if the offers you’re receiving aren’t sufficient.

Don’t despair if your listing isn’t getting the quality or quantity of offers you want. You could always pull the listing and wait a bit, or you have the option to make small changes to the property or listing to see if that will make a difference. Remember, it only takes one offer to sell a home.

credit card debt

Getting out of Credit Card Debt

In Canada, the cost of borrowing continues to rise leading to more household consumer debt. This consumer debt usually refers to credit cards, and it can cripple borrowers and families.

If you carry credit card debt every month than it’s time to plan and execute a strategy to tackle it for good. It takes discipline and alterations to your spending habits but the good news is that it’s easier than you think.

Here are some tips to help you get out of credit card debt.

Eliminate one Credit Card Debt at a Time

For people carrying a balance on more than one card, the best strategy is to focus on one card at a time, starting with the one with the highest interest rate. Because you are paying more to the lender than you are the principal, it makes sense to quickly eliminate high interest debt.

Another tip for borrowers with multiple credit card debt is that once you have it in check, make sure you only have one or two cards. More than two is usually not necessary and can lead to bad credit or a recurrence of your spending issues.

Negotiate for Lower Interest Rates

A lot of people don’t realize that they can negotiate with their lender to reduce interest rates or even consolidate their debts. If you are feeling overwhelmed by your credit card debt, then make an appointment to speak with your lender. Be open to their advice but also don’t be scared to ask how you can pay off debt the fastest with the least amount of interest.

Most lenders are willing to review your credit card debt and make arrangements that ensure you can pay it off promptly.  This could lower your rate by a percentage point or two, which can save you a lot of money.

Use a Budgeting App

There are a few popular budgeting apps that can help you control your spending, which can help reduce credit card debt.

Here are three budgeting and expenses apps that can help keep your finances organized month over month:

You Need a Budget
Wally
Mint

Reducing or eliminating your credit card will go a long way to alleviating your stress and improving cash flow. Make sure to have a plan and to stick to it.

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How to get a Mortgage if you’re Self-employed?

Being self-employed isn’t easy. You must constantly hunt for business and wear just about every hat imaginable from accounting to sales to marketing. Making life harder is that most lenders are risk-averse, meaning they have trouble approving people who aren’t employed by a company.

What hurdles must self-employed people overcome? And how can they successfully navigate the mortgage application process?

The Challenges 

Lenders look to check the same boxes for every mortgage application. They want safe applicants who make enough steady income to cover mortgage payments. They also look for people who have assets or savings in case their financial situation changes. In addition, people who took out a business loan might be hard pressed to make their application appeal to a lender at the current interest rate.

It helps if self-employed applicants have been making an income for at least two years, but the more history the better. The idea is to prove to lenders that your business is operational, successful and can continue to exist throughout the duration of the mortgage. A lender vouches for you in the form of a large loan and they need to do everything in their power to avoid defaults.

Self-employed people might make a healthy income but the source of that money makes approving a loan more complicated.

Submit an Attractive Application

For the self-employed, the situation isn’t dire and you should still try to enter the market and secure a mortgage. Here are a few tips that can help:

  • Try to have a chunk of your income from one source
  • Get a co-signer to guarantee the loan
  • Be willing to pay a higher interest rate
  • Come to the table with a higher down payment (20% or more)

Being self-employed is noble, and it shouldn’t prevent you from achieving the dream of homeownership. It takes a strategic approach, so contact us today and we can answer your questions and help you figure out a way to buy a home as soon as possible.

 

Refinancing

Should I Refinance my Mortgage?

Every homeowner is faced with tough decisions regarding the terms of their mortgage. If you are going to continue to be a homeowner, then you face a decision when your mortgage is about to expire: should you refinance or renew your mortgage?

Refinancing is a valid option for many borrowers but it’s important to understand what it entails and how it can help or hinder their financial outlook. Ultimately, it comes down to what is best for a specific situation with respect to getting your mortgage repaid.

What is Refinancing?

Refinancing is when a borrower replaces their current loan with a new one, typically with different terms. They can switch from a fixed rate to a variable rate or try to change the amortization so that they pay it off quicker or slower depending on what they want to pay a month.

Everything depends on what you want and what is being offered by your lender. You could always refinance simply because you found more favourable terms with a different lender.

Pros of Refinancing

While every situation is different, refinancing does have the potential to allow borrowers to save money on interest and other fees. Some other benefits could include lower monthly payments or the ability to shorten the time you need to repay the loan.

The first thing you should do is sit down with your lender to get an idea of how a refinanced mortgage could look. Don’t be scared to shop around and look at what others are offering. At the very least, it will give you the confidence to know that you’re making the right decision.

Does Refinancing Always Make Sense?

There is never one right answer for a loan. Refinancing is a proven and viable option but it doesn’t mean it can work for everyone equally. You should be honest about your situation and be okay to renew if that is best for your budget and income.

Have questions? Feel free to reach out to us to discuss the benefits of refinancing your loan or helping you review other options.

               

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What to Expect from a Home Inspection?

Part of purchasing a home is having a home inspector conduct a thorough examination, helping both the buyer and the lender understand the true value of the property. A home inspector will look beyond the staged aesthetic of the listed home to examine the true guts and systems that drive its value, functionality and livability. This is where potential buyers learn of any defects in the plumbing, electrical or roofing—the big-ticket stuff.

What can you expect from a home inspection? And what should you do with the information after the inspection is complete?

What does a Home Inspection Cost?

In most case, a home inspection is required by the lender. Even if it’s not, you would still be advised to hire a certified home inspector. The insight they provide can help make your decision that much clearer. Often, the buyer places a condition on the purchase where the property must pass an inspection.

The cost can vary but it’s usually around $500 for a single-family house. Condos or smaller houses can cost less. Ultimately, inspectors or inspection companies set their own prices.

What does a Home Inspection Entail?

The typical home inspection covers conditions of the following:

  • Heating system
  • Central air conditioning
  • Plumbing
  • Electrical
  • Roof
  • Insulation
  • The attic
  • The foundation
  • Windows
  • Basement
  • Chance of flooding
  • All structural components

Potential Defects

What a potential buyer wants to look for are defects that can cause severe problems that will cost a lot of money down the road. Anything structural or to do with the electrical system could turn into a big headache. If a big red flag appears in the report, then sit down with your real estate agent to discuss, or have them ask the sellers for more information.

Minor defects found in the inspection should be expected. No property is perfect. It’s about what you are comfortable with and what your budget will allow.

A home inspection is part of the appraisal and closing process of buying a home. It’s vital so make sure you hire a home inspector you trust and listen carefully to what the report suggests about the future of the home you are considering.

 

 

 

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Are you Ready to Buy a Home?

Buying a home is the biggest financial and lifestyle decision of one’s life. It’s a purchase that will impact your monthly budget, your cash flow and will provide your financial portfolio with an extremely valuable asset.

With a decision this big, how can you be sure that you are financially, personally and professionally ready to take the leap?

Career

A career provides the salary and benefits required to live comfortably as a homeowner. It’s normal to start considering homeownership once you have a steady salary and some professional stability.

Many homeowners switch jobs or even careers but these decisions are usually more heavily weighed. It’s a big responsibility to carry a mortgage but if you feel comfortable with your career progression than securing your financial future by investing in real estate could be a smart move.

Finances

The best way to decide if you are ready to enter the market is to honestly look at your financial situation. Start with your down payment and make sure you can put 20% down on the purchase price.

Next, create a budget to see how much a mortgage and home maintenance costs might change your monthly financial situation. If you have a healthy savings account and don’t carry a lot of debt, then reach out to a lender to start the mortgage pre-approval process. This will help clarify how ready you are to proceed towards the next step.

Current Market Status

Let the market dictate the direction you should travel. If it’s a buyer’s market than you could find great value. If you’re on the fence during a seller’s market, then there’s no harm in waiting, even though you could still find a wonderful starter home.

Listen to the market and it’s not a bad idea to sit down with a lender or real estate agent to get a better idea of how the market might shift.

Now is a great time to enter the market. The GTA is growing and there is a steady supply of inventory and some neighbourhoods that are still widespread with value. If you feel like your finances and career are in a good place, then what are you waiting for?

 

 

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A First-time Homebuyer’s Financial Snapshot

There are two sides to every mortgage application. One side is lenders who want to invest in safe applicants who can repay their loan and present the fewest risks. On the other side are borrowers who want to obtain fair mortgage terms and enough funds to secure the purchase of a home. For both sides to achieve their goal, a first-time homebuyer needs to provide their financial information and hope that it paints the right low-risk portrait.

Let’s take a snapshot of a first-time homebuyers’ financial profile to help determine where the gaps in your application might exist.

Down Payment

One of the first pieces of financial information an applicant will submit is their proposed down payment. Along with the purchase price, this will help determine the loan amount. It’s always a good idea to increase your down payment, if possible, as it can increase the chance at approval.

Aim for a down payment that’s 20% of the purchase price, knowing that you will need a minimum of 10%.

Assets and Liabilities 

A lender will review your entire list of assets and liabilities to determine if you are in the red or black when it comes to what you own and what you owe. Assets can include a car, other residential properties, commercial properties, RRSPs and investments. Liabilities typically include student loans, consumer debts and other mortgages and loans you might have borrowed that have yet to be repaid in full.

Ultimately, a borrower wants to have more assets than liabilities.

Credit Score

A first-time homebuyer wants to have a credit score that ranks in the positive. This will tell a lender if the applicant has a history of paying their bills and repaying their loans and lines of credit. A negative score could impact one’s chance of approval.

Income

An applicant needs to make a certain amount of annual income to carry a mortgage. Lenders will use household income and the down payment minus expenses and liabilities to determine approval and the loan amount. Income will also be a consideration for repayment terms but that comes after you choose a mortgage type.

A financial snapshot will determine whether you get a mortgage application approved. A lender will look at your income, credit score, assets, liabilities and down payment amount. If you have a strong financial profile, you stand a good chance of receiving not only a mortgage but the one you want.

Contact us today to review your financial snapshot.

freedom-tower

GTA Housing Market vs. New York City

In the U.S., New York City has always had a reputation as an expensive city for homeowners. It has its cheaper Burroughs and low-income housing, but the cost of owning a home is sky high. This isn’t just with respect to the beautiful, multi-million brownstones. The cost for the average person or family to own even a starter home is unrealistic.

A recent Globe & Mail article claimed that the Toronto housing market is starting to outpace New York City. Is this true? Has Toronto become grossly unaffordable? Are millennials hoping to buy their first home destined to be renters forever?

The Most Expensive Cities 

Whether it’s perception, reality or an inevitability, Toronto is closing the gap between historically expensive cities like London and Sydney. This is often fueled by a healthy economy and a vibrant job market, both of which attract newcomers or encourages families to grow.

The jewel of the pricy city crown has always been New York City and its housing market. Has Toronto fallen that far away from affordability?

Toronto Housing Market

Per the Globe & Mail article, Toronto housing prices have risen dramatically over the last five years, to the tune of 60%. That’s a big number for homebuyers and prospective homebuyers to swallow. Vancouver has steeper housing price increases, but Toronto being considered a more expensive city to live compounds matters.

Trouble for Millennials

Unless a millennial under the age of 30 is making well over the average median, there’s little chance they could purchase a home on their own. Even if they could afford the monthly mortgage rates, it’s not realistic to expect them to have a 10-20% down payment in addition to property taxes, maintenance, cable, internet, insurance and the other costs that are non-discretionary.

To put it in perspective, let’s say a person under the age of 30 makes $40,000 that would give them a mortgage of under 200,000. This is clearly not enough to enter the market.

Toronto is a beautiful city with a global reputation. Even if it’s lack of affordability is exaggerated, there is a growing issue especially the one facing millennials. Being an expensive city can be a point of pride because it alludes to prosperity but lenders, buyers, renters, developers and the Government need to step up and create a market where people can achieve the dream of homeownership.