The challenge for self-employed homebuyers
Millions of Canadians are self-employed; many financially stable, wealthy and successful who enjoy the benefits of working for themselves. But, when they begin thinking about buying a house it doesn’t pay to be self-employed as it typically becomes more difficult to get approved for a home loan.
That’s because the major banks have a limited box they lend within. They look for secure, stable and long-term employment, typically requiring at least 2 years’ of income statements to qualify. Self-employment is considered an alternative to the norm, resulting in application denial or unfavourable lending terms. So, what’s a self-employed professional to do?
Get the mortgage you deserve
Being self-employed doesn’t mean that you can’t achieve your dream of homeownership. Or, that you should have to sacrifice favourable lending terms just because of your professional status. As your mortgage broker, we don’t discriminate. Your Everything Mortgages Broker will work with you to develop a self-employment strategy that will allow you to get the mortgage you actually want and deserve.
We work with lenders who understand the unique challenges self-employed Canadians face. They understand these individuals have tax write-offs creating significant reductions in their declared income. We can use your gross deposits and work with as little as 6 months of you being self-employed to qualify. If you think you don’t have options as a self-employed borrower, think again.
Frequently asked questions
Self Employed Mortgages FAQs
Who is a self-employed borrower?
You! If you’re a contractor, consultant, freelancer or entrepreneur who collects invoices rather than employment pay stubs, you are self-employed. Technically, “self-employed mortgages” don’t exist. You will get approved for the same mortgage as everyone else but, you may have to jump through a few more hoops compared to a payroll employee.
How can I qualify as a self-employed borrower?
The primary difference between self-employed (or commission-based) and salaried employees is that lenders will treat your gross earnings differently. As a rule of thumb, lenders will only use 80% of your gross earnings and the average of last tax year’s income for commissioned sales people, and net income, instead of gross income, for self-employed individuals. `A lender is restricted by Canada Mortgage and Housing Corporation (CMHC) rules to use only the last three years of self-employment income.
What is considered qualifying income?
Self-employed workers typically obtain their mortgage through stated income applications, which require a signed income declaration and proof of self-employment. Stated income is how much you claim to earn. If you keep most of your income inside your company, we can qualify you for a mortgage using the gross deposit of business income over the last 12 months or allowing for retained earnings within your corporation. We can even qualify you with some lenders with as little as six months as business for self.
What income documents will I need?
Lenders will require: Your last two years of full T1 Generals and the associated notices of assessment
- If incorporated: your whole articles of incorporation
- If sole proprietor: your business or HST registration
- Last six months of bank account statements
How long do I need to be in business to qualify for a mortgage?
Most lenders require at least a two-year track record for businesses. Lenders have been known to make exceptions for professionals like doctors and engineers, as well as people starting a new business in an industry where they’ve already had a long career.
If my business produces a seasonal or irregular income, can I still qualify?
Yes, the same income requirements apply as if you earned a full-year income.
If you are a self-employed individual looking for a mortgage, it would be in your best interest to gather the required income documents and begin a mortgage pre-approval process with us. Contact us to speak with one of our self-employed mortgage specialists to help you organize and obtain the relevant documentation for you. Our digital document collection process simplifies the process, making getting pre-approved as hassle and stress free as possible. Click here to get started.
How can you use a second mortgage?
Bridge Loan / Deposit on Home Purchase
May 29, 2020
Can I still get a mortgage if I lost my job due to COVID-19?
October 17, 2019
5 Things You Need to Know About Self-Employed Mortgages