Self Employed Borrowers

Hi Everyone. Today I wanted to share some information with you about what programs are in place with TD Canada Trust for self employed individuals looking to qualify for a mortgage. Since the new mortgage rules and even more changes to the insured stated income program, I wanted to break it down for you so that you know exactly what TD and other lenders may ask you for prior to getting a mortgage. With numerous write-offs and different ways to pay yourself, TD has programs in place for those who are unable to provide traditional income confirmation.

Income Gross-Up or Eligible Add Backs
As a self-employed borrower, TD allows you to gross-up your 2 year average income from line 150 on your Notice of Assessment by 15% or you may opt to provide 2 years financial statements prepared by a licensed accountant to support a higher income level where eligible add backs exceed the 15% gross-up.  Eligible add backs can include things like business use of home, motor vehicle expenses, and capital cost allowance and must be approved by TD. One thing to note is that if you are incorporated, you are not eligible for the 15% gross up, since you receive a salary from the Corporation. In this scenario you must qualify using your 2 year average from line 150 of your Notice of Assessment.

Self-stated Income/Equity Lending
Using self stated income is exactly what it sounds like. You state your income and we take your word. Now depending on the loan to value, up to and including 75%, there may be other criteria you have to meet including minimum beacon score, proof of 3 year business for self, no previous bankruptcies, no current debt arrears, minimum 3 year credit bureau history etc. Keep in mind that the income you state must be reasonable according to industry standards and like every other credit application, your total debt service ratio and gross debt service ratio should not exceed 40% and 32% respectively. To determine your total debt service ratio, click here. One key point I should note is that non-owner occupied properties are ineligible under this program. To confirm 3 years business for self, TD may ask for things like GST returns, audited financial statements or proof of business account.

Insured stated income program
Applicants under this program are self-employed borrowers who have difficulty providing documentation for their current income level and do not have at least 35% equity. These are often people who have recently begun to work for themselves. On April 9, CMHC made the following changes to the Insured Business for Self program:

• As a self employed borrower, you must be able to demonstrate that you have experience working in the same field for a minimum of 2 years. This can include time spent working as non self-employed in the same field. 
• If you have been self-employed for more than 3 years, you are not eligible under this program and must provide traditional proof of income.
• Commissioned applicants are not eligible for the insured business for self program.
• Purchasers must provide at least 10% down payment and those who wish to refinance will be limited to 85% loan to value.

Under this program, the same criteria mentioned in section 2 of my blog must also be met. To offset the additional risk, the insured Business for Self program comes with higher insurance premiums. Refer to CMHC Insurance premiums for more information.

Remember, no matter what type of mortgage financing you are looking for, it makes sense to speak to me first. I am available outside of normal banking hours, weekends and evenings to suit your schedule.

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

New Mortgage Rules take Effect Today

Hi Everyone! The new federal mortgage rules implemented two months ago starts today. Heres a quick run down of the key points…

Qualifying Rate
All borrowers must meet the standards for a five-year, fixed-rate mortgage, even if they choose a variable mortgage with a lower rate or a shorter term. What does that mean from TD’s standpoint? Home Equity Lines of Credits, Fixed Rate Mortgages of terms less than 5 years and all Variable Interest Rate Mortgages will be adjudicated based on the greater of the 5 Year Bank of Canada Benchmark Rate, or the actual customer rate (inclusive of customer discretion). So if you qualified for a $250,000 variable rate mortgage with a qualifying rate of 3.84% and today the qualifying rate has changed to 5.85%, this means that your income needs to be roughly 25% higher today than it was before. The 5 year Bank of Canada Benchmark rate is defined at the chartered bank – conventional mortgage 5 year mortgage rate, published by the Bank of Canada each Monday. To find the 5 year bank of Canada benchmark rate, click here.

Refinances
The maximum Canadians can withdraw when refinancing their mortgages drops to 90 per cent of the value of their home, from 95 per cent. Second homes now qualify for high-ratio insured financing if they have no more than one unit.

Rental Properties
Buyers must make now a minimum 20 per cent down payment, up from five percent, to qualify for CMHC insurance for non-owner occupied properties purchased as an investment.

Key Interest rates (April 19, 2010)
Qualifying rate = 5.85%
TD Prime = 2.25%
Next BOC meeting = April 20, 2010

No matter what type of mortgage financing you are looking for, it makes sense to speak to me first. I am available outside of normal banking hours, weekends and evenings to suit your schedule. Thank you!

Sincerely,
Josephine Ng
www.tdmortgage.wordpress.com

Minimum 10% Down?

Jared Chamberlain video blogs (vlogs) about his experience in a conversation with another realtor in calgary and how they thought that buyers needed to put down minimum 10% for a personal residence. Jared talks about how this is NOT the case and nothing of the sorts has been passed thus far. For any comments or questions or if you don’t care for Jared’s thoughts please email him at jared@tcgroup.ca and visit wwwChamberlainGroup.ca for more info.