Concerned about qualifying for a mortgage as a self-employed individual? Here’s some information to help you secure a favorable mortgage rate even if you are your own boss.
With the growing number of self-employed and sales commission individuals in Canada, the mortgage industry has had to adapt by offering new programs to meet the needs of customers who don’t qualify under traditional lending guidelines.
Typically, self-employed individuals are required to provide two years of tax returns (full T1s) to calculate an average income. This income may also be grossed up by 15% in some cases. If your two-year average income is high enough to qualify for the home you wish to purchase, no specialty self-employed program will be necessary.
However, if your self-employed income on your tax returns isn’t sufficient to qualify for the home of your dreams (as is the case for many self-employed individuals), you may have the option of using a self-employed simplified/low doc product. Lenders and insurers understand that self-employed individuals often aim to write off as many expenses as possible to produce a lower income and pay lower taxes. Therefore, you may be permitted to self-declare your income, as long as lenders can verify that the amount of income you’re declaring is reasonable for your industry and you’ve been in the industry for at least two years. It’s important to note that this product may result in a higher mortgage insurance premium than a traditional mortgage.
Even if you’re just starting out as a self-employed individual, you may still qualify for a mortgage if you’ve been in the industry before or have a larger down payment.
If you want to know more about these options and whether they’re right for you, don’t hesitate to contact us.
This is an area of specialization for us as this is a major painpoint for a great deal of Canadians. The traditional meathods of qualifying for a mortgage does not works for Self-Employed borrowers; but fortunately we’ve been able to build relationships with Banks, Credit Unions, Alternative Lenders, Private Lender who are out of the box thinkers that offer programs that have more flexibilty. One of the more innovative ways we help our clients is to utilize their business bank statements/deposits as a way to help Self-Employed, Business Owners, Independent Contractors and Commissioned Sales People to meet the tougher qualifying standards.