When our parents were young and buying their first homes, the career expectations were simple: go to school, get a good job, work hard, and you’ll be rewarded for your commitment. Today, however, it’s becoming more common to not work full time. To make ends meet, many people keep multiple part-time jobs, work on contract, start their own businesses, and participate in the gig economy.
But if you need a mortgage, being in one of these situations can make things more difficult. The ideal mortgage customer has a full-time job, a good credit score, and a sizeable down payment. Without all three, many big banks won’t even consider your mortgage application.
So what do you do if you need a mortgage but don’t work full time?
Fortunately, there are mortgage options for people in almost every financial situation, including yours. Many financial institutions specialize in so-called “B” lending, selling mortgages to people who don’t fit the banks’ antiquated idea of a financially sound borrower. Since the details of your employment are unique to you, you’ll need the assistance of a mortgage broker to find the mortgage lender who can give you the most favourable rate and terms.
Your mortgage agent will ask you some questions about how you earn income in order to connect you with the right lender. There are a few situations you might find yourself in:
Employed part time
If you’re working fewer than 35 hours per week, your mortgage agent will want to know what the terms of your employment are—whether you’re salaried or paid hourly, whether your hours are consistent, and how much you earn.
As a part-time employee, you’ll need to prove your income to qualify for a mortgage. Be prepared to show your last several years of T4s and a few recent paystubs. You’ll likely also need a letter from your employer stating your rate of pay and how many hours a week you work. Since mortgage lenders get nervous easily, they may only qualify you based on a portion of your earnings. For example, they might take an average of your last two years of income or they may use your lowest annual income from the past few years.
This could work, for instance, for someone in Alberta working part-time in the oil industry. A Calgary mortgage broker could help you put together your proof of income and see how much you can afford.
The mortgage amount you can qualify for is directly tied to your income so if a part-time job is your sole source of income you may be able to get a mortgage, but finding an affordable home could be a challenge.
Self-employed
This includes people who run their own companies and who are regularly employed on a short-term contract basis, such as those who work in the arts. Much like people who are employed part time, you’ll need to prove your income using recent T4s. You may also need to prove your income by showing financial statements and tax returns. Lenders will also look for an indication of your future business success in the form of signed contracts or business plans. You’ll want to make sure all your tax obligations including GST/HST are paid in full, and show receipts.
This may work for someone working in the film industry in British Columbia’s Lower Mainland. A Vancouver mortgage broker can help you prove your average annual income and get a good mortgage rate based on your likelihood to continue getting regular work.
If you’re running a company, you’ll also be judged on the creditworthiness of your business. If your business has credit problems, it can affect your ability to get a mortgage, even if your personal finances are in good order.
Unemployed
If you’re not employed, getting a mortgage is going to be very difficult unless you have significant and reliable income from another source. Income can come from investment properties that are generating revenue, child support payments, royalties (if you’re a really famous author or own a patent on something unbelievably amazing), retirement income (such as from a LIF or RRIF), or long-term disability payments. But you’ll have to prove the income stream is regular and ongoing, and not at risk of being disrupted during the mortgage term.
If you’re between jobs and your only income is from severance payments and/or employment insurance, unfortunately you’re out of luck.
Be prepared to make concessions
There are options available for people in just about every financial situation, but you will have to give up some things in order to get a mortgage. The best mortgage rates in the market are generally reserved for those “ideal” borrowers. If you meet the requirements of the biggest “B” mortgage lenders, you can expect to pay a premium of about 200 basis points (two percentage points) over the best-in-market rates. Those rates are generally available to people with credit scores above 600 and whose income is fairly reliable despite not being from full-time employment.
If you have very bad credit or if your income is totally unpredictable, your best option may be a private lender. These are private companies or individuals who will charge you a much higher interest rate (think double digits) and who could demand harsh repayment terms. They will take a chance on you, but they will want to make sure the returns are worth their while.
You may also have to pay a much higher mortgage default insurance premium if you’re self-employed. For example, someone with a traditional income source with a 20% down payment will not pay for mortgage default insurance. But if you’re self-employed and can’t provide income verification, you might be required to buy default insurance from a company like Genworth.
If you’re unemployed and facing extremely high interest rates or harsh terms in order to secure a mortgage renewal, you may want to consider other options including selling your home. It’s not good for the ego, but it may be better in the long run than risking your credit and home equity on a predatory mortgage loan.
How a mortgage broker helps
Mortgage options are available to you even if the big banks say you don’t have the profile of their preferred mortgage customer. There are probably many mortgage lenders who will work with you, but there will be a wide range in terms and mortgage rates. A mortgage broker can work with multiple lenders to find the best possible mortgage for your personal situation. Your mortgage agent will also help you figure out which documents you need to prove your income and give you advice and guidance throughout the process. And their services are usually free.
If you don’t have a full-time job, that’s not necessarily going to stop you from getting a mortgage. You might just have to roll up your sleeves and make a few concessions in the form of higher rates and insurance premiums. Talk to a mortgage broker to find out what your options are and how you can get a mortgage that fits your lifestyle.
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