In 2008, the world experienced the U.S. sub-prime mortgage crisis. Financial markets and real estate values nose-dived around the world…. well, not everywhere. Some countries, like Canada, held their own. Most of Canada didn’t really suffer like the rest of the world. Call it luck, govt intervention, maybe being 5 yrs behind the U.S. (that’s personally what I think it was), or whatever. Today, property values have never been higher!
Here’s the strange thing. Our Federal govt has made several mortgage rule changes that makes getting a mortgage tougher. Yet, those changes were made AFTER the crisis. In fact, they have made annual changes since 2009, including 2013. Somehow, our real estate market remains red-hot. (That’s something to discuss another day).
The govt demanded higher credit scores, more proof of income, larger down payments, shorter amortizations and reduced how much your can borrow against your house. Yes, all these changes were made AFTER the 2008 crisis and are as recent 2013. And that’s what so amazing our current real estate market.. it’s resilient. It’s continued to grow and climb even with all the govt tinkering.
LET’S PICK ON SELF-EMPLOYED PEOPLE
Self-employed individuals took the hardest hit. The govt wanted to force them to show higher salaried incomes to qualify for a mortgage. They wanted this segment of Canadians to pay higher personal income taxes (why else would they make these changes?). This just didn’t make sense. One of the benefits of being self-employed is that you can pay yourself in different ways to reduce and minimize your taxes… LEGALLY! Dividends, bonuses or defer your income until needed, etc. The govt has penalized self-employed individuals by making it tougher to qualify. End result for these people is they pay a higher interest rate or they don’t qualify at all.
These changes were met with outrage and protest by consumer groups, Lenders and mortgage broker associations. But they happened so quickly. The govt steam-rolled the changes through and didn’t blink once. Hey, for those of you that think it’s all sunshine and roses being self-employed, guess again. There is no company pension or health benefits or job security or unemployment insurance benefits, etc. Self-employed people make up a large part of our population and it continues to grow as corporations hire more contract employees so they don’t have to deal with HR issues. (remember the Banks and their Temporary Foreign Workers scandal from last year?)
Oh, and by the way, there is no data to suggest or support the notion that self-employed applicants have higher arrears or pose a higher risk. That’s right, there is no additional risk to Lenders.
FINALLY, THE START OF SOME GOOD NEWS!
Now for the good news… Here’s the great part about living in a free country like Canada. When a need is identified, someone will fill that need with a solution. It was only a matter of time before someone recognized this opportunity. There are Lenders that welcome and want to lend to self-employed borrowers. Recently, we’ve seen a few more Lenders come out with some attractive products geared towards borrowers that cannot produce traditional income confirmation.
To our conservative Canadians, relax. This isn’t 2007 U.S. cowboy style lending. It’s just make sense lending guidelines that has been around a long time but disappeared for a while during our political knee-jerk reaction to U.S. mortgage crash. So long as you have good credit, can prove your self-employed or a contract employee with a reasonable stated income, then there is a solution for you. Of course, there are other factors that determine a mortgage approval, but this is the beginning of a return to common sense lending.
Call me to get more details and to see if this is for you. Everyone is different with different situations, needs and circumstances. I’d be happy to explain and discuss further.
Your best interest is my only interest. I welcome your questions and comments. Like this article? Share it with a friend.
Steve Garganis 416 224 0114 firstname.lastname@example.org