Self-Employed Mortgage Strategies

When you are self-employed, it’s sometimes hard to prove your income when applying for a mortgage. Things that work for you in your business, like tax write-offs, can work against you when it comes time to ask a bank for a loan.

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Tips for starting the process:header decoration

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Get your documents ready.

Have at least two years’ worth of tax returns and financials, your Notice of Assessments and T1 Generals, Articles of Incorporation, or business licence. Tax returns and financial documents are essential in determining which lenders and products will be available to you. It is also helpful to have bank statements, which could help convey to the lender that you have a steady income.

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Pay your taxes.

It is also important that all self-employed workers seeking a mortgage are current on their income and sales tax returns. If you have fallen behind or you still owe for previous years’ taxes, it can affect your ability to qualify for the right mortgage.

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Provide detailed information about your business.

Information like industry type and profession, business type (sole proprietor, partnership, or incorporated and percentage of ownership), is there a cash component to your business? Any steps a self-employed or business owner can take to convey they have steady and stability in their income will help in the mortgage qualification process. As such, the more informative you can be about your business, the better. Income, expenses, business milestones, break even points – information like this can improve your chances of qualifying for the mortgage you want.

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Lenders have options for several types of self-employed clients:header decoration

Income Qualified Self-Employed

Standard mortgage with as little as 5% down payment. Income Qualified on the two-year average of claimed income.

Alt A or Stated Income

Insured mortgage with as little as 10% down payment. Income is grossed up or considered “reasonable” for the industry and profession based on scale, viability of the business, and forward earning potential. Income is considered realistic given the type of business, experience, and ability of the borrower. The credit profile is clean and indicative of income capacity and the structure and nature of the business is considered (ex. is there a large cash component for this type of business?).

Expanded Options

Solutions for borrowers who cannot provide income documentation in the traditional manner but have 20% down payment are available at slightly higher rates that offset the risk to the lender associated with not having verifiable traditional income. Or perhaps your credit has been affected by fluctuating income and you need to restructure – we can help and provide several alternative solutions.

Alternative Solutions

Solutions for borrowers with non-traditional income documentation, elevated debt ratios, or previous credit impairment. Higher rates and fees may be applicable and usually good short-term fixes to get you back on track and headed back into one of the above options.

Why Are Self-Employed Mortgages Important?

With over 13% of Canadians being self-employed, the importance of self-employed mortgages is challenging to overestimate. Without traditional sources of reliable income, self-employed individuals must find other reasonable avenues to prove their income and obtain the financing needed for their home purchases. 

While self-employed income can be verified through tax returns and bank statements, another issue arises: minimized taxable income. The truth is many self-employed individuals choose to reduce their taxable income by deducting business expenses, health insurance premiums, and retirement contributions. As a result, they end up paying less taxes during the tax season—but, in turn, have much lower income to support their mortgage application.

However, homeownership is still possible. Working with our team at The Mortgage Advisors means you gain access to expertise beyond traditional knowledge. We are well-versed in all the ins and outs of self-employed mortgage strategies and offer customizable solutions designed specifically for self-employed borrowers.

Understanding Self-Employed Mortgages in Canada

When you apply for a mortgage as a traditional employee, the lender will review your Letter of Employment, pay stubs, and other typical documentation to ensure that you will be able to cover your mortgage payments.

For self-employed individuals, however, income may vary from month to month, and there are no pay stubs to confirm the actual earnings. As such, the lender must find other avenues to verify your creditworthiness. This may include bank statements or tax returns over the past few years. The lender will also consider a broader range of income sources and analyze income trends over time, rather than relying solely on your salary.

Self-Employed Mortgage Eligibility Requirements

While self-employed mortgage eligibility requirements can vary from lender to lender, they generally include the following criteria:

    • Age. You must be at least 18 years of age when applying for a self-employed mortgage in Canada.
    • Credit score. Like most mortgages, a good credit score is required.
  • Proof of self-employment.  This can include business registration documents, a business license, or partnership agreements.
  • Income verification. You must be able to prove your self-employed income. Typically, this is done through tax returns and bank statements.
  • Business longevity. Lenders prefer that your business has been in operation for at least 2 years.
  • Down payment. If you have limited proof of income, you may be required to provide a down payment ranging from 10% to 20% or more.

Required Documentation

Since tax returns are the main way to verify your income for a self-employed mortgage, you will be asked to provide the Notices of Assessment for the past 2-3 years as part of your mortgage application. In addition to tax returns, some other supporting documentation required for a self-employed mortgage includes:

  • Financial statements for your business
  • Contracts showing expected revenue for the coming years
  • Proof that your HST and/or GST is paid in full
  • Your personal and business credit scores
  • Proof that you are a principal owner of the business
  • Proof that your down payment has not been gifted
  • A copy of your borrower’s business or GST license or Article of Incorporation showing that you are licensed

The Self-Employed Mortgage Process

The process of obtaining a mortgage for business owners is quite similar to a standard mortgage application:

  • Pre-qualification. Get in touch with our mortgage agents, provide basic income information, and receive a pre-qualification letter from the lender to aid you in your home search.
  • Application. Gather all the required documentation, and let us complete a mortgage application form and submit it to the lender on your behalf.
  • Underwriting. The underwriter on the lender side will assess your application to determine your eligibility for the loan.
  • Closing. Should your self-employed mortgage application get approved, we’ll walk you through the final documents before you sign. Once the lender has your signature, they’ll fund the loan upon the home’s purchase.

Understanding Self-Employed Mortgage Rates

If you are able to prove your self-employed income through tax return statements or other documentation, you can enjoy similar rates as traditional mortgage applicants. However, if your income is insufficient or hard to verify, lenders may view you as a higher-risk borrower, resulting in higher interest rates or larger down payment requirements.

Streamline Your Mortgage Application with The Mortgage Advisors

Running your own business comes with a range of challenges, and securing a mortgage loan can be one of them. At The Mortgage Advisors, we have all the skills, experience, and expertise to help you navigate the often challenging application process for a self-employed mortgage. 

We work with multiple lenders so we can find the most competitive rates on the market and secure the most beneficial rates and terms for you. Plus, you get to enjoy a more streamlined application process, personalized guidance, and friendly conversation, – all at no additional cost to you. Get in touch with us today to chat about all your mortgage needs and learn more about the specifics of obtaining a mortgage for business owners.

Self-Employed Mortgage Frequently Asked Questionsheader decoration

The processing time can vary. In our experience, self-employed individuals may wait longer for approval due to the additional documentation required by the lender. At The Mortgage Advisors, we can streamline this process and ensure you are updated every step of the way. 

You can. However, it might be best to chat with one of our licensed mortgage agents at The Mortgage Advisors instead. We understand the application process more fully and can help you find the best mortgage options to secure your dream home.

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The Mortgage Advisors will walk you through your application process and point you to the best lenders for your financial situation.

There are a lot more mortgage options out there for self-employed Canadians than you may realize. Let us show you what they are.

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