Private Lenders Step In For Self Employed Borrowers
At Matrix Mortgage Global, we see a lot of self-employed borrowers in the same set of circumstances. Any savvy business owner/operator will want to write off as much of their business expenses as possible, therefore presenting a less-than-representative annual income on their T1 General tax returns. A Contractor, for example, might bring in $200,000 in revenues but expense $150,000 of it between the cost of building materials, sub-contractors, truck payments, etc. They would put $50,000 down on their line 150 of the T1 General, and save quite a bit of tax by doing so.
Here’s the downside. When it comes time to qualify for a mortgage, they will be asked for their T1 General and will have to pass the income qualification guidelines based on the $50,000 income, thus significantly decreasing their borrowing and purchasing capacity. The B-20 Stress Test has made it such that Schedule A Banks and Trust Companies have had to turn away 20% more borrowers because they don’t fit the guidelines.
Cue Private Lenders: Right in tandem with the increasingly strict mortgage qualification guidelines, the share of private lending in the market has gone from 3% in 2015 to 12% in 2018. They are filling a very real need in the market place for non-traditional income earners, as well as those experiencing credit issues or other complications. They are much more willing to view borrower eligibility from a big picture perspective in terms of actual affordability, and do not have set cut-off guidelines for income and credit. Private lenders and MICs (Mortgage Investment Companies) prioritize the asset (Property) above all else (Credit, income).
According to StatsCan, anywhere from 15-20% of Canadians are Self-Employed. If you include those who have a “side hustle” such as the ever popular growing ride-sharing and food-delivery service companies (Uber, Lyft, Foodora, DoorDash, etc.), you’re looking at something closer to 35%. Matrix Mortgage Global funded over 400 private mortgage deals last year, with at least 50% of those being self-employed borrowers. Many of them are relieved to be offered a mortgage solution, although at a rate 3-4% higher in some cases, plus fees up to 2 or 3%. In the end, it tends to balance out if once considers the income taxes they saved.