Sometimes, depending on your situation, you may have to take some extraordinary steps to get the financing your need for your new home. If you suffer from bad credit, are new to Canada, self employed or are thinking of getting a fixer-upper – there’s a mortgage financing option for you.
Business-for-Self (BFS) Financing:
Several programs are available to assist people who are self-employed. Lenders recognize the fact that what is shown on a BFS tax return may not truly reflect the actual income earned for that party. We have several programs where qualification is based on stated income instead of taxable income. You will be required to have clean credit and supply us with the last three yearsâ€š tax assessments from Revenue Canada confirming that you have filed as self-employed and that you are up-to-date with your taxes.
There are essentially two types of self-employed or BFS borrowers those who can prove their income and those who cannot, and must instead use a stated-income mortgage product. But, if you have been self-employed for more than three years, you can’t use a stated-income product.
By providing the required documentation, you’re much more likely to be approved for a mortgage if you qualify based on your income. The trouble is that if you cannot prove your income, you pose a higher risk in the eyes of lenders.
If you have been self-employed less than three years, you can use a stated-income mortgage product up to 90% loan to value (LTV) meaning the down payment can be as low as 10% of the purchase price. And if a BFS individual wishes to refinance an existing mortgage, the maximum loan amount is 85% of your home’s value.
If you do not qualify for traditional financing all is not lost, since you may be eligible for alternative or private funding.
I have access to private investors who are willing to lend money to BFS individuals looking to obtain mortgages. Although you will pay a higher interest rate on average about 12% this route may enable you to acquire funds to purchase a home.
It’s also important to note that there are added fees involved with private funding because the deals involve a higher degree of risk and take longer to get approved. The combined lender/brokerage fee will depend on the specific deal and the risk it poses, but the figure will be disclosed upfront so you know exactly what you’ll be expected to pay for these services.
Another key point to consider is that private financing is equity based, meaning that the lender’s decision will be based on a specific piece of real estate (as opposed to conventional deals that focus on the personal credit of the borrower). Private lenders want to know that the property is marketable and that they will be able to easily sell it should the mortgage go into foreclosure.
New to Canada:
Many of the available New to Canada mortgage products apply to new immigrants who have been in the country for up to 36 months. I can help set the home financing process in motion by securing a mortgage rate guarantee and pre-approval, and figuring out what supporting paperwork you need to provide to purchase a home in Canada even before you move.
In most cases, Canadian mortgage lenders and insurers want to see employment letters that prove your offer of employment and salary in Canada. You must also have at least a 5% down payment for the home from your own resources which means it has to be your own money, not borrowed or gifted. So, for instance, if you’re selling your home in another country and using some of the proceeds as a down payment on a home in Canada, you must be able to prove this.
Lenders and insurers also want to see that you have a solid credit history. Although requirements for this proof varies based on which insurer and lender your mortgage is funded through, I will be able to tell you exactly what documents you’ll need to provide. Often, an international credit bureau is sufficient to prove your credit history. If this is not available, you can also provide 12 months worth of bank statements, mortgage or rental payment receipts, utility or telephone bills and so on. Again, there are several options from which to choose and I will be able to specifically tell you what a particular lender and insurer want to see.
You must also apply for landed immigrant status to get the ball rolling on securing your social insurance number (SIN), which is required before you begin working in Canada.
I can also put you in touch with a trusted real estate agent to help this process run even more smoothly.
Purchase with Improvements:
This program allows you to add into your mortgage the costs for renovating your new property. It is offered for mortgages where the down payment is less than 20%. For situations where your down payment exceeds 20%, you would simply set aside a portion of money that was meant for the down payment to be used for the renovations.
The lender will require that you supply a list of work to be done and a quotation from a contractor. Once the work is complete, the lender will send the appraiser back into the property to verify that the work has been completed, and then your lawyer or notary will release these funds to you. This is important to note, as you will essentially have to pay for the renovations in advance and then be reimbursed.