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BAD CREDIT UNCONVENTIONAL INCOME

Written by Jeremy Van Caulart

Buying a home is one of the most significant decisions a person can make. 

 

For most people, it’s the most significant purchase they’ll ever make in their life, and it can also be the most important contributing factor to their wealth and retirement. Getting a traditional mortgage through a bank requires you to be financially responsible and stable.

 

 

 

But what if you haven’t been, or what if you don’t get paid like a typical employee?

 

 

 

This blog will demonstrate a path to homeownership even if your credit isn’t the best or if your income is non-traditional. 

 

 

First things first, let’s discuss lending. When you purchase a home, you require a mortgage (unless you’re flush with cash). A mortgage is a lien against the home you are buying. If you stop paying the mortgage as agreed, the lender can foreclose and sell your home.

 

 

The mortgage market is comprised of a variety of different lenders. You can get a mortgage from a major bank, a credit union, or even a private lender. 

 

 

The different types of lenders are categorized as either A-Lenders or B-Lenders. A-lenders are regulated major lenders (RBC, Scotiabank, etc.). B-lenders are less regulated than A-lenders and include a variety of different lending options.

 

 

 

A-lenders are strict and have very little flexibility when it comes to your financial situation. A-lenders offer the best interest rates. A-lenders allow for insured mortgages (less than 20% down on homes under $1,000,000). B-lenders are much less rigid and can be very flexible when it comes to your financial situation. B-lenders have higher interest rates because of increased risk. With a B-lender, you MUST have 20% down regardless of the price of the home.

 

 

 

So what’s the plan? How does someone with less than perfect credit or unconventional income get a mortgage? They use a B-lender. Okay, great, so does that mean you’ll need to pay a higher interest rate forever? No, it doesn’t. Here’s what you do.

 

 

When you speak to your mortgage broker about applying to a B-lender, you ensure the loan term is for 2-years. During that 2-years, you’re going to work your butt off to improve your credit rating. I’ll discuss unconventional income after these tips.

 

 

1. Pay off your bills on time every month.

2. Pay your MINIMUM credit card payment on time.


3. Pay the rest of your credit card balance off in 15 different transactions per month. 


4. Keep all of your credit UNDER 30% usage. It’s okay to spend over 30% on your credit so long as you bring it back down before the end of the month.


5. Pay off any bad debts on your credit report. You can call collectors and have them reduce the amount you need to pay prior.


6. Once you’ve paid off all bad debts, login to Equifax and Transunion and challenge the ‘now closed’ accounts, identify that you’ve paid them in full, and they ‘may’ remove them from your report (they also may not remove them).

7. Be patient; this is a long-term strategy that takes time.

 

Once that 2-year mortgage term is up, you can apply for an A-lender and benefit from the reduced interest rate because you’re now a credit rockstar.

 

 

 

My strategy for unconventional income is to form a corporation. A corporation is a big responsibility that requires a lot of careful consideration, but it can be enriching. 

 

 

We form a corporation so that the corporation can collect the income from the various income streams and then pay you as a T4’d employee. An A-lender can consider you once you have two years of T4’d income. If you can get an A-lender, you’ll begin benefitting from reduced interest rates.

 

 

There are a lot of financial responsibilities when you own a corporation, so you should always discuss the implications with an accountant before you form one.

 

 

I hope this helps, and thanks for reading.

 

-Jeremy Van Caulart

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