Mortgage 101 – Bank of Mom and Dad & Beyond

Clinton Wilkins and Dan Ahlstrand discuss the impact of self-employment on income and mortgage qualification.

Dan Ahlstrand
It’s Financial Literacy Month, Clinton’s favourite month of the year, and that even counts December, folks. I’m not even kidding, that’s why, isn’t it? He likes Financial Literacy Month more than he likes Christmas. That’s the kind of guy that is now.

Clinton Wilkins
Now just wait until January. We have a good month coming up in January. So I’m really good with November.

Dan Ahlstrand
We’re going to discuss some of the things that you need to to keep in mind, maybe give you a little bit of knowledge, more tools in the toolbox for you to not only if you’re looking to buy a house or if you’re looking to get into the into the into the into a new mortgage or whatever, but just to be able to function In today’s world. Because, as we said in the last segment of the show, things are changing around here a lot. And with the ongoing, with the United States and the tariffs and Trump and all of those other things, there’s a lot, a lot of things that you need to keep in mind.

<strong>Self-Employment in Mortgage Lending</strong>

Clinton Wilkins
And, one of the main things that we talk about around financial literacy is income, right? That’s really the cornerstone of people’s personal finance. And I think there’s so much uncertainty around income. The different income types, and more and more Canadians every day are becoming self-employed.

Dan Ahlstrand
So, Clinton, when somebody comes to your office and they’re sitting in a chair across the desk from you, and they’re either getting into the mortgage market for the first time. They’re renewing, they’re looking at you for whatever product they’re looking for, which is income. Is that the biggest factor that you look at when somebody is looking to do some business?

Clinton Wilkins
I wouldn’t say it’s the biggest factor. We think of all kinds of cornerstones of income, assets and credit to be important, but it’s the first thing we ask about, because we need to understand what people can afford to pay. When we’re talking about the 5c of credit, character one, obviously, that’s maybe more around the credit and how they are how are they paying? But we also talk about their affordability, and that really is tied to what that income is. And people have all kinds of different income sources. Now, before, I think it was really easy, like we would just get a nine-to-five, and that was nine to five, you could get a job letter to pay stub, or a pay stub and a T4 and call it a day. But now, there are a lot of people who are subcontractors. Some people are on a pension income. Some people are working and have a pension. There are a lot of self-employed individuals and a lot of different kinds of schemes on how people are paid. And, it’s almost like putting a little bit of a puzzle together. And I think that’s why I love mortgage lending so much. Every file is like a snowflake. And, it’s really about looking at that puzzle and then presenting the best foot forward. Oftentimes, I say a lot of people are self-employed. More and more and more of our customers are self-employed, I think primarily because bank lenders and people at the branch don’t understand self-employed as much as we do. After all, we’re doing this every day, right? Different times, different types of self-employment. Some people own corporations. There are partnerships and there are sole proprietorships, but I will say there are the most options out there right now for self-employed people than there ever have been in terms of mortgage lending. The banks are certainly more willing to lend to the self-employed today than they ever have been. And I think part of that was a mandate from the federal government. Trudeau actually came out during his government saying that, Banks, we need to be better with these self-employed folks, just because more Canadians are becoming self-employed. So we’ll look at things like, let’s say, there’s somebody who was a plumber for two years, and then this year, they become self-employed. Normally, in the old school world, for them to get, like, a full normal verification of their income, we need them to be self-employed for two full tax periods to be able to use their income. Now, what we’ll do is we’ll look at their previous income as long as the same industry to justify what their future income will look like. Yeah, sure, we may want some verification of that you’re making money right now, like maybe contracts, maybe your bank statements, maybe some internal financials or something like that. But there’s certainly more willingness to make it work with a normal prime lender. There also is stated income programs, and, their state income programs, through sage and in Canada guarantee, which, if someone’s buying a home, they can still get a high ratio purchase with as little as putting down 10% might not be 5% like a normal consumer could get when there’s verification of income, but if you are self employed and you have two years of your taxes, that’s something that we can certainly get approved, just as much as someone having a job letter on a pay stuff for self employed.

<strong>Determining the Magic Number for Mortgage Qualification</strong>

Dan Ahlstrand
Clinton. I would imagine one of the big questions that you get asked probably daily is, is there a magic number, particularly in the Halifax real estate market, how much money do we as dual incomes, or as I, as a single income? Have. To make it to qualify to get into the housing market for the first time.

Clinton Wilkins
That’s a great question. It really does depend on what the down payment is. But let’s say it’s a minimum down payment of 5% because that’s what it is. If you’re buying a home up to 500,000, you could put as little as 5% down. That number is probably around 125,000 to buy a $500,000 house. We might be able to make it work depending on what the rates are. It really depends on what that indebtedness is as well, and what the operating expenses are of that home. So there are a lot of things that go into account when we’re doing a mortgage approval, but I usually say the magic number is we can qualify someone for about four times their annual income in terms of a mortgage. So if the income is 100,000, we can qualify them for a $400,000 mortgage. Right now, the average house price in Halifax is more about 600,000, so we probably need 125 or $150,000 where they come in a household to buy an average home in Halifax. But obviously everybody’s situation is different, because we’re looking at their debt, we’re looking at their income, but we look at the entire picture, because people have income coming from all different sources. Dan, self-employed people, people who have kids, we look at their child tax benefit. We’re going down the rabbit hole here. We’re looking at pensions. We’re looking at every possible source of income that we can verify that the lenders will accept we will use because for us, it’s more important to get the full picture than it is to just say, Hey, give me your job letter and a pay stub. That’s lazy. And I see borrowers coming from other financial institutions to say, Well, I don’t qualify, but I think I will with another lender. But I actually think that I might, will you do a deeper dive into this and ask me some more questions and gather these documents. And for us, I’d rather put in a little bit of extra effort and get the best possible result for a consumer. And I think customers sometimes need to have a realistic expectation of what is possible as well. I think that sometimes we have our wants kind of outweigh our ability, and we want to ensure that when we get someone an approval, that they’re not sitting in their home, not be able to furnish it and needing to eat Kraft dinner. I personally love craft dinner, and I’ve said that before on the show, but you don’t want to be forced into that type of scenario, and that’s why, for me, verifying the income and making sure that income is going to be sustainable. I’m not doing this to be difficult. A, I’m doing this to protect the consumer, and two, I’m doing this to protect the lender, because I want to make sure that this is going to be sustainable.

<strong>Bank of Mom and Dad in Mortgage Lending</strong>

Dan Ahlstrand
Bank of Mom and Dad, we hear it a lot now that parents are helping their kids with down payments or giving them their inheritance early. Do you see that a lot?

Clinton Wilkins
Huge when I first started doing this 20 years ago? And I love doing this more today than I did 20 years ago. I will say that the average gift was 5000, 20,000, and 20,000 was probably a big gift back then. Now I see many gifts from family, 100,000 more than 100,000, I think, is the average. It’s like 117,000 is the average family gift coming in. Now, if we look across the country, part of the reason is young people, or even, I’ll just say, first-time homebuyers, for them to break into the market, it’s tough, very tough. And they need these big gifts because maybe they don’t have 125 or $150,000, where the household income to get into an average house. Into an average house. But guess what, if they’re coming with a big gift that’ll help them, usually afford a purchase price above what they would normally qualify for, or

Dan Ahlstrand,
Would that also help to get a larger down payment? So then you avoid some of the fees, like this.

Clinton Wilkins
CMHC Exactly. If you can put down 20% then you’re avoiding the CMHC fee. And it’s always cheaper to put down 20% than it is to get a high ratio mortgage, even though the rates on a high ratio mortgage are less than the rates on a conventional are a little bit more. But it also gives you the flexibility to go to a 30-year amortization, regardless of whether you’re a first-time homebuyer or not. So if people have 20% down, I always think that’s the way.

<strong>Importance of Seeking Professional Advice</strong>

Dan Ahlstrand
So to sum up, the income segment of the show here, Clinton, it’s not just what you’re making at your job that will be the determining factor for your mortgage when they come to visit somebody like you.

Clinton Wilkins
Exactly. We look at all the different sources. It may be self employment, it may be child tax benefit, it might be pension income, it might be, , Veterans Affairs, like we literally consider every possible income source to have the best possible outcome for a consumer, and that’s where I think it’s so important to seek the advice of an unbiased mortgage professional, because they’re looking at that full scope, not just, Hey, here’s a job letter and a pay stub. I want to dig a little bit deeper. I want to ask some more questions, and I want to probe because I want to make sure that I’m going to be giving the best advice as well.

Dan Ahlstrand
Got to be a difficult conversation. We’ve only got about 40 seconds left here before we have to take our next break. That has to be a deep dive conversation with people who maybe think that they aren’t, as the commercial says, aren’t as rich as they think.

Clinton Wilkins
When a customer talks, maybe sometimes they’re nervous, they’ve never been in front of a mortgage broker before or never really gone and sought credit. Sort of me asking the questions. It’s about building that plan. If you’ve liked what you’ve heard and you want to learn more, feel free to visit us online at TeamClinton.ca