Mortgages for self-employed people

While self-employment is a great way for many Canadians to earn significant incomes, getting a mortgage when self-employed can be challenging – especially if you’re dealing with big banks.

The issue usually comes down to the fact that because of the tax write-offs that can make self-employment attractive, the amount of money you actually make may not be accurately reflected on your income tax statements.

So, how can you show enough income to satisfy mortgage lenders?

Here are just a few of the proven strategies that your Capital 360 Mortgage Agent can use to increase your chances of qualifying for your mortgage loan.

Writing off fewer expenses

Yes, this may seem in some ways seem to defeat the purpose of self-employment. But, writing off fewer expenses for two years prior to purchasing a property means your income will be higher. The higher your income on paper, the better your chances of qualifying for the mortgage loan you need.

Take time off after you’ve purchased a home

Flexibility with your free time is one of the great benefits of working for yourself. However, if you plan on purchasing a property within the next two years, it’s best to do it afterward. Taking too much time off before making a purchase can have a big impact on your income and hurt your chances of qualifying for your mortgage loan.

Work with a CPA (Chartered Professional Accountant)

Choosing to handle your finances through a CPA is a great way to present self-employed income. Chartered accountants know what to look for, and have the experience required to prepare your taxes, handle your expenses and more. All of this looks great to Ontario mortgage lenders and adds a layer of professionalism to your application.

Let them know you want to buy a property, and ask them how to help you make it happen.

Ask about stated income

It is always a good idea to talk to your mortgage agent about stated income. Stated income is based on your past two years of self-employment in the same industry. 

Lenders will research your industry, and determine the mean income of someone of your experience within that industry. This mean income is your stated income, which could potentially be used for applying for a mortgage.

Getting re-established after bankruptcy

In general, if you’ve ever declared bankruptcy, lenders won’t be impressed. However, if you have filed bankruptcy in the past, but have shown a solid and consistent approach (2yrs+) to re-establishing credit afterward, this may be overlooked. If you are in this category, you will need to provide your mortgage agent with all relevant bankruptcy and discharge papers.

Increase your mortgage down payment

As with any mortgage, the higher the down payment, the better your chances of securing a mortgage loan. Ask your agent if increasing your down payment above the 20% threshold will improve your chances of being approved.

Existing properties and debts

Ontario lenders will also want to know if you own any existing properties, including rentals. You will need to provide copies of any existing mortgages, signed tenant leases, and proof of rent deposits.

If you have any outstanding unsecured debts (debts not tied to any collateral – credit cards, unpaid tax bills, etc.), lenders may apply a 3% re-payment based on balances that appear on your credit report. For outstanding student debts, this may drop to 2%.

If the debt is secured, i.e., a secured line of credit, lenders will likely use an actual payment to amortize the balance over 25 years.