Mortgage 101 – All About the Income

Dan Ahlstrand and Clinton Wilkins discuss the changing landscape of income and housing in Nova Scotia. They focus on the recent federal government announcements allowing up to 90% home equity borrowing for secondary suites.

Impact of New Housing Rules on the Market

Clinton Wilkins
I choose to live in Nova Scotia, do business in Nova Scotia. I think it’s a great place to do that. And on this segment, we’re going to talk, really about income. What are the different types? How can we prove it? You know, some changes that are happening with income. And we have Chris still with us, and we’re gonna talk to him a little bit about that as well, and some of the high ratio insurance programs that are available.

Dan Ahlstrand
I guess I’ll kick it off, Chris. In the last segment, we were talking about the products and what you have available. The market changing a little bit in in Nova Scotia, to deal with some of the housing issues that we have have. We’re talking a lot now about granny suites and secondary suites and those kind of things. How does the insurance world take those into account?

Chris Johnson
I said earlier, lots of change, constant change. Another change that’s literally just come out in the last couple of weeks with the federal government is that they’re going to allow some flexibility for people to borrow off their home if they are looking to put in some kind of a secondary suite, or, as you say, like a granny suite. It’s very new news. It literally is breaking in the last couple of weeks. So it’s not something that we have a lot of details on exactly what it’s going to look like yet. But just to give some sort of background perspective, up till now, in the last number of years, anybody looking to refinance their home, if they own a home and they want to pull money out for whatever financing they’re looking to do, it would be capped at 80% of the value. And as per the government rules that have come out, it looks like they’re looking at allowing up to 90% so we don’t know much more beyond that, because, again, it’s literally hot off the press.

Clinton Wilkins
What you know is what’s in the news exactly at this point.

Chris Johnson
I mean, January 15 is the date that they’ve indicated in their news release. So it is fairly right around the corner. So it’s going to be interesting to see what it’ll all look like, what some of the particulars will be. But I I think there’s certainly a need for it, based on what we’re seeing out there, as far as what’s available in the market to buy.

Clinton Wilkins
With these changes, I’m going to assume that Sagen and the other insurers are expecting next year to be busier than this year. Is that kind of what you guys are projecting, or that we’re kind of still in early talks?

Chris Johnson
It’s early days for all of it. I mean, as you know, Clinton, there’s so many variables to what makes a market busier or who knows what the uptick even it’s going to be on these projects Exactly. That’s exactly however, in saying that, you know, anytime you make changes like this, it puts attention on the housing market, on home ownership, people who may have looked in the past and are sort of thinking, ‘Oh, geez, like all these things are happening,’ or even existing homeowners who have maybe been dabbling with, ‘could we rent out our property you’re part of our property,’ and all of a sudden this potential change is there, and they look at their finances and think, ‘Wow, this is a real option for us.’ So there’s no question, it could certainly spur some activity.

Clinton Wilkins
A couple times in my adult life, I’ve owned my principal residence and I’ve had an in law suite. It’s just such a great way to have income that helps pay my mortgage. You know, I’ve done it myself. I’ve been single, I don’t mind renting out a basement apartment. And with the way the rents are, it was almost enough rent that it was paying my mortgage. Yeah, as wild as that might sound, it was just so, so beneficial. And I think that’s gonna be a great way to increase the income in a household, really, with probably a very low amount of effort overall. Absolutely, I think it’s going to be, certainly very positive. You know, there’s all kinds of different income out there. Chris and I know, obviously, from an insurer perspective, from lenders perspective, we look at all kinds of different income. Obviously, nine to five income, there could be investment income, obviously rental income, but more and more Canadians every day are becoming self employed. And really, I think there’s some really great programs out there. I know there’s some programs from the insurer, so we want to hear about that. But people are even becoming self employed in their existing fields. So for example, maybe they worked for a plumbing company and then they bought the company they worked for, or they were working for a plumbing company and they went out on their own and they got some contracts. And we’re seeing those type of things, and lenders overall are accepting that type of income. Maybe we’ll look at the last two years of what they were making at their employer, and they’ll accept it going forward. But on the flip side, people are becoming self employed in, obviously, new industries and new businesses. And that can become more tangly. I hear from so many borrowers that you know maybe have dealt with a bank branch, and they’ve been turned down, notoriously, branches. They hate dealing with self employed people, more tangly, more documents they don’t understand. There’s so many different types. I’m gonna throw it to you, Chris, and maybe you can just give us a high level overview of some of the programs that are available from an insurer perspective, for self employed borrowers.

Gig Economy and Freelance Income

Chris Johnson
Absolutely, and I hear everything you’re saying. There’s so much opportunity here, so much more for various reasons, lifestyle, opportunity. People just want to be their own boss, or whatever the case. And so self employed is certainly, definitely a segment of the market that’s, I would say, on the rise, and certainly lots of opportunity. But with that comes some definite, curveballs sometimes. And there’s some risk income and some risk involved, because, different from what you were saying, the nine to five job, again, whatever that is, but you’re kind of guaranteed a paycheck of a certain amount, right? Whereas with self employed, it is variable income, and it it does fluctuate week to week, month to month. So you mentioned Clinton, in some cases, verifiable income is an option where you can track back and say, Okay, over the last two years, they made an average of this, and that could be what an insurer would look at.

Clinton Wilkins
That’s easiest. That’s what we consider like a full documentation.

Chris Johnson
Which is really almost like a standard application. Where it gets a little more interesting is when you get into a scenario where you can’t do that as much, or maybe someone’s business is generating more income that they’re showing on paper, essentially, for various reasons, right, depending on the type of their business andso that’s where we can look at other programs. And I, for a number of years, agents had a, what’s called a stated income, self employed. So essentially, what that does is allow us to look beyond that verifiable income and look at, okay, is there additional income here that’s reasonable based on the type of business they’re running, that we’re comfortable potentially using some additional income to help service or look to approve that application. So, that’s where working with a professional Clinton like yourself is key, because you know these programs better than anybody, and sort of working with the customer, look at their situation to see, okay, how are we going to apply this? So it really is very case by case. There’s no easy yes or no in those we really need to get the information, get all the details.

Clinton Wilkins
Obviously, I know you mentioned credit earlier, and we ask a lot of questions, we get a lot of questions. We get a lot of documentation. And I think, you know, that’s the best, way forward. And you know what, these programs are available. But not everyone is aware.

Dan Ahlstrand
You know my world as is evolving and in the business that I’m in, we’re moving away from being a salaried, this is what you’re getting paid, into the gig economy and into the freelance economy. This question might be for the both of you, gentlemen, how does that work for somebody that that is working contract to contract, gig to gig, is it the same? Is it the same rules, or is it different than somebody that’s self employed?

Chris Johnson
Really good question. And the thing I first would say about that it actually defines the difference between a lender and an insurer. So really important to look at what the lenders guidelines are. So if you’re working with a bank, a mortgage bank, a credit union, they will each have their own individual guidelines around income, right? So it always starts there, because they’re going to have their own internal rules, and then matching it up with an insurer and what those guidelines look like.

Clinton Wilkins
It has to satisfy the lender. If the lender is not going to be cool with the income, it won’t even get to the insurer. The insurer is basically going to decide if they’re concurring with the lender or not. And typically, some of these lenders will force these transactions to a manual review to say, hey, here’s what I got. The person was employed for two years now has gone out same industry. Are we okay with how this is presented and the overall risk of the file, and at the end of the day, you know, it’s risk versus reward. A lot of moving parts. And that’s what I love about mortgage lending, income, assets, credit, it’s all different. And that’s why it’s so important to talk in November, obviously, about financial literacy. And it really starts at home. So I think looking in the mirror is really important. Open your mail. Know what’s going on in all of those categories.

Dan Ahlstrand
It’s not financial literacy week, it’s Financial Literacy Month, because there’s so much involved. Clinton you and I were chatting off the air there, and we’re going to keep this moving forward, and we’re going to do something special to mark financial literacy week.

Clinton Wilkins
That’s right, we’re going to talk about it all month. There’s going to be lots of stuff on our social media. You can check out things on our website as well, at teamclinton.ca/radio, but we are going to be doing a live show. I know people love hearing us live on News Radio. 95.7, we’re going to be taking some calls, and we’re going to be bringing on some other really great guests onto our show.

Dan Ahlstrand
So stay tuned for that. We’ll give you lots of time and lots of notice and lots of reminders to join the program. Chris, I appreciate your time. And Clinton, thanks for allowing me to sit in for Todd. I hope I didn’t do too bad of a job. And it was a blast. It was wonderful. Thanks, Dan, that’s going to be it for Mortgage 101. This month, we’ll see you when we see you!