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Self-Employment Mortgages

If you're self-employed and looking to refinance your home, call or text Penny at (604) 787-3809.


Self-Employed? How to Qualify for a Mortgage

Self-employment is the ultimate dream for many individuals. Qualifying for a mortgage while self-employed presents challenges, though these can be overcome. The self-employment landscape is growing. In the past, B-lenders were the go-to for freelancers and contractors but as the market has grown, A-lenders also consider self-employment mortgages to be a viable prospect.

These are some things to keep in mind if you are looking to successfully seek a self-employment mortgage.

 

Self-Employment Mortgages Defined

Borrowers who depend on business or self-employment income, as opposed to salaried jobs, may qualify for this type of loan.

Lenders take other factors into consideration because your income will be different from that of a regular wage-earner. The criteria that lenders use will also be unique.

Often, things like tax deductions and business expenses cause the net income on a business owner’s tax return to look relatively low. Typically, with a mortgage loan, the net income on a tax return is analyzed to assist in the decision for qualification purposes. As you can see, the income of a self-employed individual is not necessarily accurately represented on a tax return, thus the need for a self-employment mortgage.

Most lenders require an applicant to have been self-employed for 2 years to show decisive income. Some lenders require 3 years of self-employment as reassurance.

Business income is assessed on top of personal income when assessing the income of a self-employed individual.

Your income tax returns, bank statements and business documents will determine your self-employment status.

 

Securing a Self-Employed Mortgage

There are three types of income qualifications to consider when approaching a bank for a self-employed mortgage.

1.       Traditional Income

Most self-employed individuals will need to verify their income by tax return confirmation as they will not be able to confirm their β€œreal” income in a traditional sense.

2.       Non-Traditional Income

The most common method for self-employed contractors to show their actual income is via the business’s financial statements, since your personal tax return will look inaccurate comparison.

3.       Stated Income or β€œNo Income Verification Mortgages”

If you cannot meet traditional mortgage qualifications but are self-employed, you may state your income in good faith despite the lack of verification. Private lenders are the only lenders who will proceed with this type of mortgage.


What Documents Will I Need?


1.      Business Documents

  •          GST/HST Account Number
  •          Business Number Registration
  •          Articles of Incorporation

This will prove how long your business has been functional (only a requirement for corporations). You are required to submit your GST/HST number if your gross sales or revenue in a single quarter of a calendar year totals more that $30,000.

 

2.      Notice of Assessment

Your NOA is a must as it reflects any possible unpaid taxes owing. Your T1 General income tax returns may be sufficient to sum up your income for some applications.

Please note: Unpaid taxes are a huge concern because the CRA could find cause to eventually register a lien against your property and list it for sale on the market.

 

3.      Financial Statements

When you are wishing the lender to qualify your mortgage as non-traditional income, financial statements are particularly necessary.

 

4.      Bank Statements

Bank statements are just another way to prove your income and the lender will look upon this favorably.  It’s also a good idea to include your T2 Corporation income tax return, and ongoing contracts with expected revenue.

 

What About My Credit Score?

Your credit score is another consideration for lenders when assessing the qualifications you have for a self-employed mortgage.

Based on your history of borrowing and returning money, your credit score indicates to a lender whether you are likely to repay your loan down the road. Scores range from 300 to 900, with anything over 660 considered a good score, and a score over 725 plus being a very good score.

Bank programs such as RBC Self Employed Mortgage, Scotia Mortgage for Self-Employed, and National Bank Mortgage for the Self-Employed, and more, are options for the self-employed. Although BMO, CIBC, and TD do not have specific platforms for the self-employed business owner, they may consider and assess mortgages fairly.

Maximum loan requirements and minimum down payments vary from bank to bank.

 

Self-Employed Mortgage Lenders Are Out There

Historically, A-Lenders and B-Lenders handled the bulk of mortgage lending. A-Lenders generally have more definite criteria to meet – stress test, stable income and good credit.

B-Lenders, however, require fewer qualifications from the self-employed and are considered more flexible and may arrange a mortgage in a few days time. A private loan will allow you to use the property you currently own as collateral for a self-employed mortgage.

Even if you have bad credit or no credit history, you may qualify for a private mortgage. A private mortgage loan is also ideal for someone who requires funding quickly – often funded within seven days.

 

Is a Mortgage Broker Right for Me?

A mortgage broker versed in alternative and flexible financing may be your best option if self-employed. In addition to suggesting the best mortgage solutions and best lenders, a mortgage broker will also assist with your loan application and can submit your application to more than one lender, giving your mortgage application the best chance for acceptance.

 

5 Steps to Qualify and Secure Your Mortgage

1.      Ensure that you have at least two years of verifiable self-employment income.

2.      Gather all your documents including income tax returns, financial and bank statements, most recent Notice of Assessment, and any other pertinent information relating to your business.

3.      Strengthen your credit score to obtain the best mortgage rate. A score of 600 is required to meet CMHC requirements.

4.      Maximize your down payment. Insured self-employment mortgages require 5% and uninsured require a higher amount.

5.      Find a mortgage broker that you are confident will understand your needs and provide you with a mortgage loan to suit your goals.

 

For more information, call or text Penny @ (604) 787-3809. We will assess your situation confidentially, in detail.







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