Financing - Employee VS. Self Employed, 3 Months Income or 2 Years Required?

[Nir]

Hi All,

A friend of mine is an engineer. He found a job with a large reputable company. on contract though, not permanent. The employer is offering/suggesting him, with regards to income, either to do it as self employed so he can deduct more expenses OR just work as a regular employee if he wants but then he will save less on taxes.

2 questions regarding financing/getting a mortgage as an employee on contract:

- Is it better for him to do it as a regular employee instead of self employed or it does not really matter since it is the same employer, same position and same income in both cases? (and in both cases we`re talking about a contract employee, not permanent)

- Is it true showing 3 months income is usually enough for the banks or is it actually 2 years!?

He did not have employment income in the past 2 years. Since I heard both opinions in the past - some say 2 years some say 3 months is enough,
I wanted to ask the experts here which of the 2 is correct(?)

Thanks,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ May 15 2010, 06:55 PM) ..
I wanted to ask the experts here which of the 2 is correct(?)

..
Complex problems have simple, easy to understand, wrong answers !

Neither option is "the" correct answer. It will be hard for him to get a low interest rate mortgage with no income for 2+ years .. he will likely get a higher interest rate mortgage.

Thus, consider 4 other options:
a) you buy with him and co-qualify
b) buying a property with an assumable mortgage
c) getting a short term variable rate mortgage and re-fi in 2 years with more stable income
d) rent .. why buy ?

Where is this ? Alberta ? BC ? ON ?

 

[Nir]

QUOTE (ThomasBeyer @ May 16 2010, 10:00 AM) Where is this ? Alberta ? BC ? ON ?

Thank You Thomas! He is in Ontario. so if understand this correctly, with ONLY 3 months employment income it is possible to get a mortgage, just not the best conditions(?) Interesting.

 

[markl]

Lenders typically look for 2 years in the same field before looking at contract work.

Your mortgage broker should be able to direct you through the best options in this scenario.

Regards,

 

[Thomas Beyer]

QUOTE (investmart @ May 16 2010, 02:16 PM) Thank You Thomas! He is in Ontario. so if understand this correctly, with ONLY 3 months employment income it is possible to get a mortgage, just not the best conditions(?) Interesting.
correct .. it is CRITICAL that your friend hooks up with a decent mortgage broker .. several very competent folks blog here !!

 

[RobMacdonald]

With many answers in the lending world, IT DEPENDS.

I have financed clients that have been newly self employed, just recently left their company but then signed a contract with the previous employer. It can be seen as a tax strategy and saves some money for both parties. However, the client had a really good net worth, many years working in the industry and a sizeable down payment.

If you friend has no employment income in the past 2 years, and is newly self employed, they would need to show a very significant downpayment in order to qualify. If they start as an employee, most lenders would like to see the probationary period passed, but depending on the strength of the remainder of the application, it may be possible to get an exception.

Sorry, but it really depends. There`s many factors involved in a credit application.

 

[Nir]

QUOTE (RobMacdonald @ May 17 2010, 01:01 PM) With many answers in the lending world, IT DEPENDS.

I have financed clients that have been newly self employed, just recently left their company but then signed a contract with the previous employer. It can be seen as a tax strategy and saves some money for both parties. However, the client had a really good net worth, many years working in the industry and a sizeable down payment.

If you friend has no employment income in the past 2 years, and is newly self employed, they would need to show a very significant downpayment in order to qualify. If they start as an employee, most lenders would like to see the probationary period passed, but depending on the strength of the remainder of the application, it may be possible to get an exception.

Sorry, but it really depends. There`s many factors involved in a credit application.Thank You Rob!

Would your answer be different if, instead of applying for a new mortgage, the same person only applied to re-finance an existing property where a down-payment is not required?

In other words, would you say re-financing (up to say 80% in order to take out an amount using his property`s equity) is significantly easier and would probably be possible even with only 3 months history as a new contract employee?

Regards,
Neil