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22 Jul

How to Get a Mortgage as A Self-Employed Canadian

Mortgage Tips

Posted by: Michael Greene

You may not fit in the neat boxes at the bank. At Mortgage With Mike we don’t have boxes, we have solutions!

Self-employment is becoming more and more popular amongst Canadians, who account for 15% of the population according to Statistics Canada. We have an entrepreneurial spirit and are very hard working. The problem is that it is also becoming more and more difficult for self-employed people to get a mortgage, even with good credit. Typically, the banks will only give you a loan up to 65% LTV maximum as a 1st mortgage.

In Ontario, if you have less than a 20% down payment, you need to prove two years of income. Unfortunately, many self-employed people claim a smaller income for tax purposes. If this is you, the big banks will see you as a risk.

We work with self-employed Canadians every day and come to understand the issues they face when seeking financing. Your dream of homeownership should not be crushed by a decline from the bank.

Self-Employed Mortgage Options 

Now when it comes to being self-employed there are two ways to get approved for a mortgage with income validation, and without income validation.

Validated income means you’ve been in business for two full years, the business is registered as a self-employed proprietorship, you have good credit, and you’ve declared income on your tax returns. That doesn’t mean you’ll necessarily qualify for a mortgage with a lender; it just means you have proof of income.

Without income, validation means you can show that you are self-employed and you can’t prove your income but you show enough information for the lender to determine you are making sufficient money.

With proof of income, you would be able to get a mortgage from any one of the three mortgage insurers CMHC, Genworth, and Canada Guaranty. If you cannot validate your income you will have to find a lender that accepts Genworth and Canada Guaranty.

A. Self-Employed with Bad Credit

Having bad credit can make it very difficult to secure a loan from a traditional lender. In addition to being self-employed, which the banks view as risky, bad credit suggests there is an even greater chance you’ll default on a mortgage.

A private lender, on the other hand, is much more concerned with your current and future earnings than past mistakes. Your credit score may be bruised, but private lenders will still help you secure a mortgage if your business is profitable and you have a steady income.

B. Self-Employed with Low Income

If you’re self-employed and report low income, you can still qualify for a mortgage. There are a large number of private lenders that will help you secure a low-income or even no-income mortgage.
Again, private lenders understand that most self-employed Canadians try to minimize their taxable income. Private lenders know the difference between reported income and gross income. In fact, some private lenders will add 10% or 15% onto the reported income if you can show business deductions that are equal to or greater than that. This can significantly increase your mortgage eligibility.

C. Self-Employed and Over 55

One of the largest growing demographics among the self-employed in Ontario are those 55 years of age and older. You might be an entrepreneur but when you hit 55, banks only see that your long-term earnings potential is smaller than it was when you were 45 or 50. At the same time, chances are you’re looking for the same kind of mortgage as someone who is 25 and just getting on the property ladder.
According to the big banks, this means you’re less likely to be able to pay the mortgage off. Fortunately, there are private lenders that specialize in helping those who are 55 and older secure a mortgage.

Self-employed Mortgage qualifications

  1. Credit rating has to be average to excellent.

  2. Down payments can range from 35% for Non-CMHC and 10% down with CMHC
  3. Proof that you are a principal owner in the business. (GST Return, articles of Incorporation, a recent Invoice, a business license, Business brochure)
  4. At least 2 years as a self-employed person.
  5. Stated Income is allowed – Income Verification Not Required.
  6. In some cases need most recent Notice of Assessment to show NO income taxes are owed.
  7. Financial statements for your business.
  8. Proof that your HST and/or GST is paid in full.
  9. Contracts showing expected revenue for the coming years.
  10. Your personal and business credit scores.
  11. Proof that your down payment has not been gifted.

Final Thought: Everyone already knows it makes sense to go to a specialist to get the job done to satisfaction – similar to how you consult other expert advisors, such as lawyers, accountants or financial planners. We are your mortgage professional and will work with you directly. You may have a complex situation – it makes perfect sense to find an experienced mortgage professional who can customize a mortgage product to meet your specific needs while keeping you short-term and long-term financial goals in mind.

Some food for thought

  1. If pays to plan ahead. Speak with a trusted mortgage professional well before seeking to secure a mortgage. What does your debt load look like? What are your plans for business growth? How much income do you plan to declare?
  2. Keep your credit in good standing. This is the most important in obtaining a mortgage as a self-employed individual, you must maintain a sound credit history.
  3. Be Organized. Keep all your financial statements, tax returns, T1 Generals, Notice of Assessments, etc. in good order. It may pay to hire an accountant to help keep you organized.

Securing a great mortgage as a self-employed person should not be a hard task. Consider speaking to your trusted mortgage professional to assess your situation.