Getting a mortgage as a self-employed individual.
Are you aware of this? In the mortgage and financing industry, approximately 15%+ of Canadians are self-employed, which makes this a significant market. However, getting a mortgage as a self-employed person differs from a traditional borrower’s.
To qualify for best rate financing, self-employed individuals with established businesses must have two years of history. Applicants include sole proprietors, incorporated corporations, and self-employed partnerships.
Starting from the beginning.
When you are self-employed and applying for a mortgage, you generally need to provide the previous two years’ Revenue Canada personal tax assessment notices and respective T1 generals. In general, borrowers with these documents – and acceptable income levels – should not have a problem obtaining mortgage products at rates comparable to those available to traditional borrowers.
Self-employment has its benefits.
One of the primary benefits of working for yourself is the ability to write off your income. Expenses can be written off, which reduces your tax bill but decreases your borrowing power. Understanding this is crucial since you either have less tax to pay or more borrowing power.
You will fall into one of three categories, depending on how you define self-employment:
- 1. Tax documents are readily available to you, and your income is high enough, so there should not be any initial challenges.
2. The documents you can provide are from Revenue Canada and Revenue Quebec, but you don’t have enough income because of write-offs. You will need at least 10% down when using standard interest rates. If you put in less than a 20% down payment, the default insurance premiums are higher.
3. Because you cannot provide Revenue Canada or Revenue Quebec documents, you will have to put down 20%, and your interest rate may be higher.
The lender typically requires a letter of employment and recent pay stubs from the borrower to confirm his income. Typically, lenders calculate self-employed applicants’ income by taking either an average of the last two years’ income or your most recent annual income, whichever is lower.
The future is bright.
When submitting your mortgage application, you will also need to provide the following documents:
An accountant must prepare the financial statements of an incorporated business for two years (Income Statement and Balance Sheet).
The two most recent tax returns and NOAs (Notice of Assessments)
Business bank statements for the past 6-12 months
Check that HST/Source Deductions are up-to-date
Please feel free to contact us if you are self-employed and seeking mortgage qualification or simply have some questions when you are ready. Also, please let me know if you need assistance in acquiring the necessary documentation, understanding your options, and obtaining a pre-approval to help you determine how much you qualify for.
The following reasons make us the perfect match:
This is one. Having been in business for over two decades, we understand mortgages inside and out.
Here are two. The mortgage professionals at our company are highly knowledgeable and experienced.
The third is. We have access to traditional lenders as well as private lenders.
The fourth point. Direct Private Lending is something we specialize in.
The fifth. When credit does not fit other guidelines, we can do a bundled mortgage