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Self Employed Mortgage

A self-employed mortgage is a residential mortgage on a home that is being purchased by a self-employed individual or someone who owns their own business. Self-employed home-buyers need much more proof when declaring their earnings for a mortgage loan than salaried employees who only need T4’s to prove their income.

To qualify for a Self Employed Mortgage, banks will ask you to provide financial documents which can prove you have both a steady income from your business and a strong credit rating to be eligible for a mortgage.  These include:

  • Income statement for your business which proves it is profitable
  • Strong credit scores for yourself and your business, usually 600 or above
  • Business contracts which show proof of future income.
  • Tax receipts which prove income tax payments
  • Proof of ownership for business

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    What types of Self Employed Mortgages are available?

    There are typically two types of Self-Employed Mortgages that a borrower could be eligible for, a Stated Income/Stated Asset Mortgage (SISA), or a No Documentation Loan. Keep in mind that it is up to the financial institution if they offer both of these types of loans, if at all. A SISA mortgage relies on documentation that supports the stated income amount you provide to the lender. After providing the necessary proof of income and the financial institution verifies this information, you can be eligible for a loan. A No Documentation Loan offers you the option to apply for a loan without needing to provide any additional documentation to the lender. This is a good option for those self-employed individuals who have suffered losses in their business and do not want it to affect their loan application. However, in a No Documentation Loan, the borrower must keep in mind that interest rates for these loans will be significantly higher and that the bank will check your credit score regardless of the mortgage you are applying for. It is imperative you keep it in good standing regardless of your financial situation if you want to get a mortgage.

    How can a self-employed person get a Mortgage?

    Attaining a mortgage as a self-employed individual has unique challenges to consider which are not present for traditionally employed individuals. There is a greater expectation to provide proof of your self-employed history, along with responsibility to bring additional documents which can ensure the lender that the borrower will be able to repay the debt with their income. The borrower must also be able to give a 10% down payment for their mortgage and prove that it was not gifted to them.

    How long do you have to be self-employed to get a Mortgage?

    To obtain a Self-Employed Mortgage, most financial institutions will ask that you provide personal tax notices of assessment for at least 2-3 years within your mortgage application. This proof of self employment for a significant period of time gives the borrower confidence in your ability to pay back your mortgage consistently throughout its term and gives you access to the same mortgage options as people who are not self employed. If you are not able to supply proof for a significant period of self-employment, you could still be eligible for a mortgage, provided you have a strong credit score, usually 700 and above. and are able to give a minimum of 10% as a down payment.

    How can I increase my chance of getting approved for a Self-Employed Mortgage?

    Because the burden to prove eligibility is greater on self-employed individuals, it pays to be well prepared before applying for a loan. The following should be considered before going into apply for a Self-Employed Mortgage:

    Speak to a financial advisor

    A financial advisor will help you understand exactly what your current situation is in relation to your debts, current loans, personal and business expenses and total income. Understanding your finances and identifying and correcting any outstanding arrears is crucial to being approved for a loan.

    Maintain a strong credit score

    Even for those opting for a no document loan, a credit check is unavoidable and will prove to be the deciding factor if you get approved or not. Maintaining a strong credit score will signal to the borrower that you are a trustworthy lender.

    Make all documents available

    The more proof you bring of your business income and it’s profitability, the more likely you are to be approved for a loan. If a lender has enough documentation to reassure them that your business income can support a loan, you are that much more likely to be approved.

    Is it harder to get a mortgage if I am self employed?

    Obtaining a Self-Employed Mortgage can be more difficult than a traditional mortgage as the borrower has to take extra steps to prove to the lender that they are capable of maintaining regular payments on their mortgage. It is possible that depending on the financial institution, that Self-Employed Mortgages are not offered at all. Where they are offered, there is also the chance that banks will significantly increase the interest rates for these loans, making them a more difficult consideration for borrowers. To give a better chance at being approved, lenders are expected to offer a large down payment, up to 20% or higher, as well.

    Another difficulty associated with Self-Employed Mortgages is the lack of a T4. A full time Employee can provide proof of income through a simple T4, however a self-employed individual must provide a stated income form, which shows the amount the potential borrower claimed to have earned, and then must provide documentation which can prove the stated amount is accurate.

    Lenders will also apply the Debt Service Ratio when considering your eligibility for a loan. This is a measurement which determines your ability to maintain regular payments on a loan after all your financial responsibilities have been considered. These include monthly bills, car loans, lines of credit, student debt and any other loans.

    If after considering these other factors the bank is confident that you are able to meet their requirements for regular payments, you will be eligible for a loan.

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    Commonly Asked Questions

    You should be self employed for at least one year before considering a Self-Employed Mortgage, however waiting until you have 2-3 years of income to show will greatly increase your chances of getting approved. Canada Mortgage and Housing Corporation (CMHC) limits lenders to consider only the last three years of income.
    The basic documents you need to provide for consideration are: income statement for your business, credit scores for yourself and your business, Business contracts which show proof of consistent income, Tax receipts which prove payments and proof of ownership for your business.
    It is more difficult to get a Self-Employed Mortgage because there is a greater burden of proof from the lender to show they can maintain the payments necessary for a loan. Detailed income statements, along with a strong credit rating and a significant down payment are considered necessary for these loans.

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