When it comes to understanding a mortgage for a self employed individual it is critical to recognize that the core principles of the mortgage remain the same whether you are self-employed or employed as a traditional employee. The process of securing a mortgage for a self-employed individual can be a bit different due to the nature of their income. Unlike a traditional employee who receives a steady pay cheque, self-employed workers typically experience variable income streams that can fluctuate widely from month to month or year to year. This can make it slightly more challenging for a lender to assess the clients' ability to repay the loan.  In order to obtain financing for a self-employed individual, the job of a Mortgage Broker is to work with the client to gauge how best to demonstrate their financial stability and reliability to lenders. Every lender will have different policies on which type of self-employed clients they will work with and how they assess the client's income as presented. This is why many self-employed individuals may find it challenging to obtain a mortgage, even from their bank they have dealt with for many years. Many times there will be additional documentation required beyond the standard requests for someone that is self-employed. Lenders will often look for documentation such as the companies financials, 2 to 3 years of tax returns with N O As, 6 to 12 months of bank statements and ownership documentation to show at least 2 years of self-employment, like the Master Business License or Articles of Incorporation for an incorporated business. The down payment required for a self-employed individual can be as little as 10% depending on the structure of the clients self-employment; however, we traditionally see a mortgage for a self-employed individual requiring a down payment of 20% due to the client's income structure. The source of the down payment is also important with a self-employed individual as lenders may not allow gifted down payment and require that the down payment be fully from the client's own resources. There are many mortgage programs available for a self-employed individual, the availability of the different programs mainly comes down to how the client pays themselves from their business. The simplest way to calculate the clients' income is by looking at the client's verifiable income; this is how much is shown on the client's tax return and in many cases it does not provide much qualifying power as their net income may be low. The reason for this is that self-employed individuals have a different way of declaring their income due to advantages provided by write-offs and other tax benefits; especially if the individual is incorporated. An individual that is incorporated or owns an incorporated business has a few options when it comes to paying themselves from the business, and may even pay themselves only enough to cover their personal expenses while electing to keep money within the business. The benefit to this is a lower taxation expense; however, the trade-off is that there may be issues qualifying for a mortgage based on the clients' income; this is where a 'stated' or 'declared' income mortgage product comes in. These mortgages may require the client to declare their income and the lender will use different methods to verify and ensure that the declared income is realistic and will provide an opportunity for the client to repay the mortgage. These mortgages may feature slightly higher interest rates and have fees; although, when compared with the tax savings, the higher interest and fees make much more sense than paying more tax to the Government. It is always recommended that clients discuss their financial situation with their accountant and financial advisor, as well as their mortgage broker; in order to structure their finances in such a way that provides the most benefit to the self-employed individual. Having professionals in each field involved in the process and providing feedback is crucial. More and more people in Canada are choosing to be self-employed and lenders are responding with different mortgage products and programs in order to provide these individuals with an opportunity to obtain financing for a dream home for them and their families. In conclusion, a mortgage for a self-employed individual is the same as a mortgage for a client that is employed in a traditional manner, the difference comes down to how the client's income can be calculated. There are different options available, however, some of these options may not be available based on the client's verifiable income. It is important that a self-employed individual work with a Mortgage Broker in order to review the different mortgage products available to them and ensure they have the most suitable option in place for them and their family. Feel free to reach out at (905) 440-5392 with any questions on self-employed mortgages or anything else mortgage related!

A common term and form of advertising to hear in the mortgage industry is that "in most cases, my services are free". While it may come across that Mortgage Brokers are doing the work for nothing, in reality, it really comes down to who pays us, and more often, it is the lender, not the borrower. 

For a typical, well qualified mortgage file that is done on the Prime, or A lending side, a Mortgage Broker is paid by the lender as a form of commission, or finder's fee. I will discuss broker fees shortly; however, it is important to note that most Prime lenders do not allow Mortgage Brokers to charge any fees, such as a broker fee, to the client. If you are having a mortgage done by a Broker where a broker fee is being charged, and it is with a Prime lender, it is recommended to discuss this with the broker and lender to ensure everything is being done properly. 

A finder's fee is paid to the Mortgage Broker by the lender after the mortgage has funded, also known as the closing day, and is generally a percentage of the mortgage amount. A typical percentage is one percentage of the funded amount; however, it varies amongst lenders and is higher or lower depending on the length of the term.

On top of the finder's fee, a Mortgage Broker may also receive other incentives, such as Volume Bonuses from lenders that a Mortgage Broker uses commonly or Efficiency Bonuses from lenders to award Mortgage Brokers that send quality files or promotions that are offered by lenders from time to time.

Another form of commission that a Mortgage Broker may make from a lender are trailer fees. A trailer fee is a form of commission that is paid over time rather than all up front. A finder's fee is still paid shortly after closing the mortgage; however, it is smaller than normal since a portion of it is paid out annually. This method of getting paid is preferred by some brokers as it stretches out their income stream and may allow better control of funds.

When a Mortgage Broker works on a file that is suitable for an alternative, also known as a B lender, or a private lender, they may charge a broker fee, which is a fee for their services that is paid for by the client and is normally processed on closing day and collected by the client's lawyer and then sent to the Mortgage Broker.

The reason that a broker fee may be charged on these types of files is that some of these lenders do not pay a finder's fee to the Mortgage Broker directly; or they offer a lower finder's fee than normal.

It is important to note that a broker fee may not be charged on alternative files since the lender may offer a suitable finder's fee to compensate the Mortgage Broker. If a broker fee is being charged, it could be that the lender does not pay a finder's fee or there was a substantial amount of work put into the file, or a combination of both. Most private mortgages will feature a broker fee as the majority of private lenders do not pay the Mortgage Broker any compensation.

Whether a mortgage is being done with a prime, alternative, or private lender, a Mortgage Broker should always be transparent about their method of compensation and be open to explaining who is paying them for their services, the lender, the client, or both? A Mortgage Broker is also required to disclose how they get paid directly to the client on the Disclosure To Borrower document that is given to the client during the mortgage process. If your Mortgage Broker is not transparent or has not disclosed this information to you, it is recommended to ask why and get more information to ensure you are protected.

There is nothing wrong with asking your Mortgage Broker if there is a different product available to you that would pay the Mortgage Broker less money in order to save you more money over the course of your mortgage. In fact, Mortgage Brokers are regulated to ensure that the mortgage product offered to the client is in the best interest of the client, and recommendations were made without weighing the broker's compensation above the client's interests.

It is also important to note that a Mortgage Broker is not paid directly by the client, and all compensation must go through the mortgage brokerage that the Broker represents, no matter what type of compensation it is. If your Mortgage Broker or Agent is requesting payment directly, you should discuss this with the Principal Broker of the brokerage or the regulator, the Financial Services Regulatory Authority of Ontario.

So, you're curious about alternative mortgage lenders, huh? Well, you've come to the right place! Let's dive right into it and explore what exactly an alternative mortgage lender is. When we think about getting a mortgage, the first thing that usually comes to mind is heading straight to a traditional bank or credit union. After all, they are the most commonly known and trusted sources for most loans, including mortgages. However, there is a whole world of alternative mortgage lenders out there that you may not be aware of. It is important to note first and foremost that a common misconception is that needing to source funding from an alternative lender is indicative of something negative, such as bruised credit; however, that could not be farther from the truth. In fact, many of the strongest clients are with an alternative lender simply because the traditional banks or prime lenders are unable to work with their income or investment situation. A perfect example of this is a self-employed individual that chooses to pay themselves a low income and take advantage of the tax write-offs available to them or a real estate investor that increases the size of their property portfolio and no longer qualifies based on a prime lender's lending guidelines. Also important to note that many of the prime lenders also have an alternative lending side in order to maximize the solutions they have available for all clients. To put it simply, an alternative mortgage lender is any entity or institution that provides mortgage loans outside of the conventional banking system. These lenders often cater to borrowers who may not meet the strict criteria set forth by traditional lenders. They offer unconventional mortgage options that can be a great fit for those who may have unique financial situations or obstacles. One of the key characteristics of alternative mortgage lenders is that they typically have more flexible underwriting standards compared to traditional lenders. This means that they are more willing to work with borrowers who have less-than-stellar credit scores, limited income documentation, or non-traditional sources of income. So, if you've been turned down by a traditional lender due to a low credit score or lack of steady income, an alternative mortgage lender may be the answer you've been looking for. These lenders often specialize in niche markets and cater to specific borrower profiles. For example, some alternative mortgage lenders focus on lending to self-employed individuals who may have difficulty proving their income through traditional means. Others may specialize in providing loans to real estate investors or borrowers with unique property types, such as vacation rentals or mixed-use properties. Now you might be wondering, how do these alternative mortgage lenders work? Well, they typically raise funds from various sources, such as private investors or institutional investors, rather than relying on deposits like traditional banks. This allows them to have more flexibility in their lending practices and offer a wider range of loan options. So, why would someone choose to work with an alternative mortgage lender instead of a traditional bank? Well, there are a few reasons that make alternative lenders an attractive option for certain borrowers. Firstly, as mentioned earlier, alternative lenders have more flexible underwriting standards. This means that they can often work with borrowers who may not qualify for a loan from a traditional lender. So, if you've been turned away by a bank due to a low credit score, high debt-to-income ratio, or lack of income documentation, an alternative lender may be more willing to work with you and find a solution that fits your unique circumstances. Secondly, alternative lenders can often provide faster loan approvals and funding compared to traditional lenders. This can be particularly advantageous for individuals or investors who need to act quickly in a competitive real estate market. Additionally, alternative mortgage lenders may offer unique loan programs and features that are not available through traditional lenders. For example, they may offer interest-only payment options, flexible repayment terms, or creative financing solutions tailored to specific borrower needs. So, if you have a specific financing requirement or a non-traditional property type, an alternative mortgage lender may have the perfect solution for you. Of course, it's important to note that working with an alternative mortgage lender does come with some considerations. These lenders may charge slightly higher interest rates and have lender fees that a traditional lender doesn’t. This is because they are taking on higher risk borrowers or providing loans with less documentation. So, it's crucial to carefully analyze the costs and terms of the loan before making a decision. All costs of the mortgage (including future costs associated with the mortgage) should be considered and calculated with the assistance of a mortgage broker in order to protect yourself and ensure that the product is a suitable solution for you and your family. In conclusion, alternative mortgage lenders offer a valuable alternative to traditional banks and credit unions for borrowers who may not meet the strict criteria of conventional lenders. They provide flexible underwriting standards, unique loan programs, and faster loan approvals, making them an attractive option for many homebuyers or real estate investors. If you're in a unique financial situation or have been turned away by a traditional lender, it's worth exploring the options offered by alternative mortgage lenders.