More and more Canadians are working for themselves which is a growing sector of the Canadian economy. For mortgage financing, business owners mortgage options have been limited as the government has introduced 4 rounds of changes over the last few years. In this post, I will discuss the prime (triple A) lending options and in a future post will discuss the alternative lending options which are more costly.
Business Owners Mortgage Options
Before we get into the bread and butter of mortgage options, I want to elaborate on who is considered a business owner by the lenders and insurers:
- Sole Proprietor
Commissioned salespeople such as mortgage brokers and real estate agents are not considered business owners unless they are incorporated.
The insurers (CMHC, Genworth and Canada Guaranty) look at business owners depending on length of owning a business:
- Less than 2 years: None will finance a mortgage (note there are the odd exceptions depending on applicant's scenario). This type of applicant is best served by alternative lenders.
- 2-3 years: All 3 insurers will consider providing a mortgage up to 90% loan to value for a purchase (all refinances regardless of employment status have been reduced to 80% loan to value in Canada)
- More than 3 years: Genworth and Canada Guaranty will consider providing a mortgage up to 90% loan to value
A business owner can obtain 90% loan to value mortgage using a "reasonable" stated income as per the above pending credit score and history. The insurance premium for a stated income applicant can be as high as 4.95% of the mortgage amount.
Business Owners Mortgage Downpayment
There are cases where the business owner has access to a large downpayment and wants to avoid the mortgage insurance premium which can be costly. If the business owner can:
- Put 35% downpayment
- Provide proof of operating business for 2 years or more (article of incorporation)
- Provide proof of not owing taxes to Revenue Canada (notice of assessment)
The borrower can obtain a mortgage up to 65% loan to value using a stated income without paying an insurance premium. The stated income option is not available when the borrower is buying an investment property, the actual income income per Notice of Assessment is used which complicates the mortgage approval process.
Overwhelming? Here is a flowchart summarizing the above options: