Toronto Market Watch: November

Greater Toronto Area REALTORS® reported 5,793 sales in November 2012 – down by 16% compared to November 2011. 

“Transactions have been down on a year-over-year basis since June, after being up substantially in the last half of 2011 and the first half of 2012. Some buyers pulled forward their decision to purchase, which has impacted sales levels in the second half of 2012,” said Toronto Real Estate Board (TREB) President Ann Hannah.

“Stricter mortgage lending guidelines, including a reduced maximum amortization period and a purchase price ceiling of one-million dollars for government insured mortgages, have prompted some buyers to move to the sidelines. This situation has been exacerbated in the City of Toronto because the additional upfront Land Transfer Tax takes money away from buyers that otherwise could be used for a larger down payment,” continued Hannah.

The average selling price was up by 1.6% annually to $485,328. The MLS® Home Price Index (MLS® HPI) Composite Benchmark was up by 4.6 per cent compared to last year.

“The moderate annual rate of price growth compared to previous months was largely due to a different mix in detached home sales this year compared to last, particularly in the City of Toronto. The share of detached homes that sold for over one-million dollars was down substantially, which influenced the overall average price,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

“The MLS® HPI detached benchmark price, which tracks the price for a home with the same attributes over time, was up by almost six per cent in Toronto, suggesting that market conditions for low-rise homes remain quite tight despite a changing mix of sales,” added Mercer.

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Can I qualify for a mortgage if I am unable to confirm my income?

If you are self-employed, you already know the benefits that come with making your own decisions and never having to report to a boss. However, there are some disadvantages to generating your own income when it comes to applying for a mortgage. Some of you are likely looking at low mortgage interest rates and thinking about buying a home.

There are two basic methods to show income for self employed people. The first is ‘declared income,’ and the second is ‘stated income’. Declared income is provable. It usually averaged over your last two income tax years. If you have been self-employed for a certain length of time, you may be able to use stated income. This is reasonable income based on the type and size of your business.

Down Payment

Many lenders require a larger down payment for self-employed borrowers because of the uncertainty and variability of self-employment income. Even with good credit, a self-employed person will likely have to put down 20 percent on the home.

If you don’t have a 20 per cent down payment, or third party income validation, you will have to pay a higher CMHC Mortgage Loan Insurance premium. In the below table you will see the difference in CMHC premiums for someone with full ime employment (employee) and self-employed individual:

Down payment	CMHC for  employee	CMHC for  self-employed
35%	0.50%	0.80%
25%	0.65%	1.00%
20%	1.00%	1.64%
15%	1.75%	2.90%
10%	2.00%	4.75%
5%	2.75%	Not Available

Documentation requirements for Sole Proprietorship and Partnerships

• Notice of Assessment for the last 2 years
• Any one of the following must confirm at least two (2) years business-for-self tenure:
• Business License
• GST/HST Return Summary
• T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm's length third-party
• Audited Financial Statements for the last 2 years, prepared and signed by a CA

Documentation requirements for Corporations

• Articles of incorporation
• T1 Generals with statement of business activities attached for a minimum 2 years prepared by an arm's length third-party
• Notice of Assessment 2 years of recent

Self-employed workers who are looking to get approved for a mortgage should always keep their personal tax returns up-to-date and filed on time. Pay all income tax owning on time, and keep your credit repayment history clean. If you do this, you will be able to demonstrate to lenders that you are serious about your business, and serious about home ownership.

Eligible properties:

• Maximum 2 units where at least 1 unit must be occupied as the principal residence
• Existing and new construction
• Readily marketable residential dwellings, located in markets with demonstrated ongoing re-sale demand
• Older homes (pre 1950) must have been substantially modernized and the estimated remaining property (economic) life must be at least 25 years
• New construction must be covered by a lender -approved New Home Warranty Program

Borrower qualification:

• Strong credit and credit score with minimum 2 trade lines (like credit cards) with at least two (2) years history and at least $2000 credit limit.
• No mortgage, installment or revolving credit delinquencies appearing on the credit bureau in the past 12 months
• Lender to ensure borrower(s) have no tax arrears
• All applicants used to qualify must occupy the property
• Spousal guarantors acceptable

Hopefully this information would be useful for self-employed investors. If you still have questions or need help, leave a comment and I will be happy to assist you.