A new trend in home buying

Over the past few months a new trend has seem to have emerged. Many trades-people have been pouring in applying for mortgages; however, many of them are now subcontracting as opposed to working for said employer. What does this mean exactly and what does it take for them to buy a home?

Firstly, this now means that this client is self-employed and responsible for his/her own income taxes, workers’ compensation and benefits. As attractive as the extra income is to you, as they’ll likely pay a few more dollars an hour, it also means that you will have extra costs as you are now running a business and have now taken on more responsibilities and liabilities.

Self-employment is like ‘Jekyl and Hyde’, on one side you can make a lot more money and have more freedoms but on the other side is a level of risk and responsibility you may not be prepared for as lenders aren’t too fond of the self-employed these days, and rightfully so. We are in the highest category for mortgage delinquency and defaults, meaning we are the most likely to not pay for a mortgage. Mortgage delinquency for the newly self-employed (one to four years) individuals is three to five times higher than any employed individual.

The mortgage insurer rules for the self-employed have changed dramatically over the past few years and it’s difficult to keep up as each lender has their own criteria for qualifying as well. There too many rules to list but I can cut them down to a couple simple rules (and there are exceptions to these) to start. They want to see a minimum of two years of self-employment with two years of financial statements completed and up-to-date personal taxes with great credit and depending on your debts, you’ll need be between 5 and 10% down payment from your own saved up funds.

The lenders and mortgage insurers need to see that you are capable of paying your own taxes in a timely manner and are able to responsibly manage your income and debts.

For example, if you are a journeyman welder with two years of self-employment and have all of your taxes up to date along with paying yourself a good wage from your earnings then all should be ok. However, if you deviate from one of the above, let’s that you have great credit, but haven’t done your taxes in two years and even have 10 – 20%for a down payment, you won’t likely be able to buy a home until your accountant has completed and filed all of your paperwork and you’ve paid all of your taxes.

As of late, I’ve had many applying to buy homes that are quite outside the box of being able to qualify, but many don’t seem to fully understand what they are getting themselves into with regards to self-employment.

Contractors would prefer to hire sub-contractors for a few different reasons; the following are the main ones: less administration, less source deductions (you pay your own taxes), no workers compensation, no benefits and also less labour laws to deal with. So before you leap into sub-contracting ensure you understand everything you are getting yourself into.

So do the benefits outweigh the risk? Of course they can, but one has to look hard into the mirror and ask themselves the hard question: Am I organized enough to handle all of the aspects of being self-employed? Is now the right time? Should I get more established before delving deeply into this? Do I have enough saved up to live without working for three to six months?

Being self-employed can be very rewarding, but I’ve also seen many disasters happen because of it. The best advice I can provide is preparedness. Do the research so that you know you are getting into the right situation for you and your family and lastly, expect to put some things on hold for the first couple of years until you have a couple of tax seasons behind you.

Jean-Guy Turcotte is an Accredited Mortgage Professional with Dominion Lending Centres-Regional Mortgage Group and can be contacted for questions or appointments at 403-391-2552 or emailed to jturcotte@regionalmortgage.ca.

Just Posted

WATCH: Red Deer College unveils the BMO Financial Group Wellness Studio

BMO contributes $300,000 towards RDC’s Shaping Our Future campaign

Ignition Theatre delves into Gruesome Playground Injuries

Compelling production runs through to Jan. 26th in the Nickle Studio

First official speed skating competition held at Setters Place this weekend

More than 100 junior speed skaters from across Alberta competed in the Jeremy Wotherspoon Open

Get your healthy on

Healthy Living Expo promotes sustainable, innovative and healthy lifestyles

2-for-1: Total lunar eclipse comes with supermoon bonus

On Sunday night, the moon, Earth and sun lined up to create the eclipse, which was visible throughout North and South America

China demands US drop Huawei extradition request with Canada

China detained two Canadians on Dec. 10 in an apparent attempt to pressure Canada to release Meng

9 brains, 3 hearts: Some wild facts about octopuses

Things to know about the giant Pacific octopus, which is naturally found in the waters of the U.S. West coast, the Aleutian Islands and Japan

Hollywood announces 2019 Oscar nominations

Netflix has scored its first best picture nomination, something the streaming giant has dearly sought

Edmonton Police advise delays expected for Tuesday pro pipeline convoy

A pro-pipeline truck convoy is expected Tuesday morning on the Anthony Henday in Edmonton

Jason Kenney disputes expense allegations while MP

Questions over his residential expense claims from his time as a cabinet minister in Ottawa

Anti-pipeline group wants NEB to consider impact of emissions, climate change

Stand.earth filed NEB motion asking to apply same standard to the project as it did with Energy East pipeline

Teen in confrontation with Native American: I didn’t provoke

Nick Sandmann of Covington Catholic High School said he was trying to defuse the situation

Kamala Harris opens U.S. presidential bid in challenge to Trump

The 54-year old portrayed herself as a fighter for justice, decency and equality in a video distributed by her campaign

Most Read