Brokers continue to vent their frustration over securing mortgages for self-employed clients, but are increasingly directing them to write off less of their income, among other successful strategies.
“We had a plumber who had just set up his business in 2011, after working as an apprentice up until 2010, whose 2011 claimed income wasn’t enough to satisfy lenders,” Shaun Zipursky of Dominion Lending Centres City Wide Mortgage Services told MortgageBrokerNews.ca. “When he filed his income tax for 2012, the lending institution was satisfied with the income. So for 2013, the lender was willing to finance the mortgage.”
All it took, Zipursky said, was a simple conversation with his client about declaring more income.
Often, self-employed individuals write off as much as possible, which may save them some money but will hinder their ability to secure a mortgage.
“You have to be mindful of what you’re declaring and what you’re writing off,” Zipursky said.
Another proven method has been using a benchmark to determine what a self-employed client’s income would be if they were employed in a more traditional role.
“I look at whatever industry they’re looking in and what they would normally make as a salary,” Jody Henry of Dominion Lending Centres Arrowsmith told MortgageBrokerNews.ca. “You look at others in the industry, look at the paycheck of an employee who is employed fulltime by a company and use that as a benchmark.”
Of course, insurers pose even more challenges.
“It depends on the underwriter and the mood they’re in that day. An underwriter in a bad mood will decline it,” Henry said. “In my experience, CMHC used to be the most reasonable -- now they seem to be the least reasonable. Now I have the most success with Canada Guaranty and Genworth (for insuring mortgages for self-employed clients)."
One thing brokers are clamouring for is a dependable set underwriting guidelines for self-employed clients.
“There doesn’t seem to be any set reasonability test; it would be nice if the lenders and insurers established a guideline for self-employed people,” Henry said. “Even the insurers have their own individual guidelines, so sometimes you need to shop around to find an insurer that will back the client’s mortgage.”