Mortgage Rules Reject the Non-Traditional Workforce
Posted By: Rachel Kavanagh
Mortgage Rules Reject the Non-Traditional Workforce – When the federal government toughened mortgage rules in 2018 and the Bank of Canada began raising interest rates there was a subsequent squeeze on the “non-traditional” workforce. There have been estimates that the non-traditional workforce (self-employed, consultants, freelancers, independent contractors etc.) comprises between 20-30% of all working Canadians. When it comes to applying for a home mortgage a number have been rejected.
In 1986, the National Housing Act (NHA) Mortgage Backed Securities Program was introduced to help provide the traditional full-time workforce with housing by lowering the cost of residential mortgages. In order to qualify, mortgages had to be written to a consistent standard. An important part is to look specifically for stable income by evaluating a borrowers T4 tax form, among others. This standardized practice eliminated errors that could be associated with more complex reviews of other income sources and therefore allowed for conventional mortgage lenders to achieve the scale required to meet the rising mortgage demand.
However, non-traditional workers are not your usual salaried employees and it puts them at odds with the current mortgage qualification rules. Without regular paychecks or access to financial statements such as the T4, non-traditional workers have found themselves on the wrong side of conventional mortgage lenders. Even if a bank wanted to give someone a mortgage, the current loan-approval process makes qualifying for a mortgage near impossible.
Cue the alternative lender. An alternative lender employs a more qualitative approach to reviewing a mortgage applicant’s situation. When assessing a borrower’s qualifications, they also consider the type and reasonability of income and other factors that may be unique to the borrower’s situation. This method allows for alternative lenders to qualify more non-traditional workers for mortgages. According to one alternative lending company, more than one-third of their borrowers are non-traditional workers. These alternative lenders provide the unconventional, unsalaried population with an opportunity to work toward graduating to a conventional mortgage lender.
The Bank of Canada remains committed to getting its benchmark rate to the estimated neutral range of 2.5-3.5%. The neutral rate is the level at which it neither heats up nor slows down the economy. This will impact the non-traditional workforce further and make it even harder for them to qualify for a mortgage through the traditional methods. This means a continued shift to alternative lenders.
Until the mortgage industry catches up to the 21st-century workforce and evolves to serve the growing non-traditional workforce, freelancers and the self-employed need to consider their choices for financing. RE/MAX All-Stars Benczik Team Realty has partnered with some of the best mortgage agents in the business to help ensure that the correct financial decision is made.
* Mortgage Rules Reject the Non-Traditional Workforce – posted by Benczik Team Realty
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