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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:

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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.
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    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.

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    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.

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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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